Analysis of Fan Industry PDF

Analysis Of Fan Industry Of Pakistan Executive Summary
Table Of Contents
1 Executive Summary ..................................................................................................................................... 1-16
1.1 Objectives Of The Research...................................................................................................................... 1-17

1.2 Research Methodology.............................................................................................................................. 1-17
1.3 Key Findings Of The Research ................................................................................................................. 1-18
1.4 Recommendations ..................................................................................................................................... 1-21
2 Introduction.................................................................................................................................................. 2-24
2.1 Small And Medium Enterprise Development Authority ........................................................................... 2-25

2.2 Fan Industry............................................................................................................................................... 2-25
2.2.1 Large Scale Manufacturers.............................................................................................................. 2-27
2.2.2 Medium Scale Manufacturers .......................................................................................................... 2-28
Small Scale Manufacturers ............................................................................................................................ 2-29
Vendors .......................................................................................................................................................... 2-30
2.3 The Research ............................................................................................................................................. 2-31
3 Porter’s Analysis Of Manufacturers .......................................................................................................... 3-32
3.1 Barriers To Entry....................................................................................................................................... 3-34

3.1.1 Economies Of Scale ......................................................................................................................... 3-34
3.1.1.1 Large Scale Manufacturers...........................................................................................................................3-34
3.1.1.2 Medium Scale Manufacturers ......................................................................................................................3-34
3.1.1.3 Small Scale Manufacturers...........................................................................................................................3-34
3.1.2 Fixed Costs ...................................................................................................................................... 3-35
3.1.3 Brand Identity .................................................................................................................................. 3-36
3.1.4 Switching Costs................................................................................................................................ 3-37
3.1.4.2 Medium And Small Scale Manufacturers.....................................................................................................3-38
3.2 Rivalry amongst competitors..................................................................................................................... 3-38
3.2.1 Industry Growth............................................................................................................................... 3-38
1-1

3.2.2 Over-capacity .................................................................................................................................. 3-39
3.2.2.1 Economic Downturn ....................................................................................................................................3-39
3.2.2.2 Increased Competition .................................................................................................................................3-39
3.2.2.4 Medium and Small Scale Manufacturers......................................................................................................3-40
3.2.3 Diversity of Competitors .................................................................................................................. 3-40
3.2.3.2 Medium and Small Scale Manufacturers......................................................................................................3-40
3.2.4 CONCENTRATION AND BALANCE AMONGST COMPETITORS ............................................... 3-41
3.2.4.3 Small scale manufacturers............................................................................................................................3-42
3.2.5 Product Differentiation.................................................................................................................... 3-42
3.2.5.1 Large Manufacturers ....................................................................................................................................3-42
3.2.5.2 Medium and small scale manufacturers .......................................................................................................3-43
3.2.6 Barriers To Exit ............................................................................................................................... 3-43
3.2.6.1.1 Vertical Integration............................................................................................................................3-43
3.2.6.1.2 High Brand Equity.............................................................................................................................3-43
3.2.6.1.3 Strategic Interlinkages .......................................................................................................................3-43
3.2.6.1.4 Emotional Barriers.............................................................................................................................3-44
3.3 Bargaining Power Of Suppliers................................................................................................................. 3-45
3.3.1 Number Of Important Suppliers....................................................................................................... 3-45
3.3.2 Availability of substitutes................................................................................................................. 3-46
3.3.3 Switching Cost Of Suppliers Products ............................................................................................. 3-46
3.3.4 Suppliers Threat Of Forward Integration........................................................................................ 3-47
1-2

3.3.5 Industry Threat Of Backward Integration ....................................................................................... 3-48
3.4 Bargaining Powers Of Buyers ................................................................................................................... 3-49
3.4.1 Number Of Important Buyers........................................................................................................... 3-49
3.4.1.1 Large Scale Manufacture..............................................................................................................................3-50
3.4.1.2 Medium And Small Scale manufacturer ......................................................................................................3-50
3.4.2 Availability Of Substitutes ............................................................................................................... 3-50
3.4.3 Buyer’s Switching Costs .................................................................................................................. 3-50
3.4.4 Buyer’s Threat Of Backward Integration ........................................................................................ 3-51
3.4.5 Industry Threat Of Forward Integration ......................................................................................... 3-51
3.5 Availability Of Substitutes ........................................................................................................................ 3-51
3.6 Conclusion................................................................................................................................................. 3-52
4 Porter’s Analysis Of Vendors...................................................................................................................... 4-53
4.1 Entry Barriers ............................................................................................................................................ 4-54

4.1.1 Economies Of Scale ......................................................................................................................... 4-54
4.1.2 Sales Tax Rule And Its Impact ......................................................................................................... 4-54
4.1.2.1 Greater Control Over The Business .............................................................................................................4-55
4.1.2.2 Increased Purchasing Power.........................................................................................................................4-55
4.1.2.3 Increase In Overhead Costs..........................................................................................................................4-55
4.1.2.4 Forgone Revenues........................................................................................................................................4-55
4.1.2.5 Lesser Benefits Of Learning Curve..............................................................................................................4-56
4.1.3 Proprietary Product Differentiation ................................................................................................ 4-56
4.1.3.1 Lesser Technological Innovations................................................................................................................4-56
4.1.3.2 Specifications Of Products Supplied By The Buyer.....................................................................................4-56
4.1.4 Brand Identity .................................................................................................................................. 4-57
4.1.4.1 Low Capacity Of Individual Vendors ..........................................................................................................4-57
4.1.4.2 Lesser Product Differentiation .....................................................................................................................4-57
4.1.4.3 Willingness To Pay ......................................................................................................................................4-57
4.1.5 Switching Costs................................................................................................................................ 4-57
4.1.5.1 Capital Requirements ...................................................................................................................................4-57
4.1.5.1.1 Machinery..........................................................................................................................................4-57
4.1.5.1.2 Raw Material .....................................................................................................................................4-58
4.1.5.2 Access To Distribution.................................................................................................................................4-58
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4.1.6 Absolute Cost Advantage ................................................................................................................. 4-58

4.1.7 Government Policies........................................................................................................................ 4-58
4.1.8 Expected Retaliation ........................................................................................................................ 4-59
4.2 Industrial Rivalry....................................................................................................................................... 4-59
4.2.1 Industry Growth............................................................................................................................... 4-59
4.2.2 Fixed Costs/Value Added................................................................................................................. 4-59
4.2.3 Over-Capacity.................................................................................................................................. 4-60
4.2.4 Product Differences ......................................................................................................................... 4-60
4.2.5 Brand Identity .................................................................................................................................. 4-60
4.2.6 Switching Costs................................................................................................................................ 4-61
4.2.7 Concentration And Balances ........................................................................................................... 4-61
4.2.8 Informational Complexity ................................................................................................................ 4-61
4.2.9 Diversity Of Competitors ................................................................................................................. 4-62
4.2.10 Exit Barriers .................................................................................................................................... 4-62
4.3 Buyers Bargaining Power.......................................................................................................................... 4-62
4.3.1 Concentration .................................................................................................................................. 4-62
4.3.2 Switching Cost ................................................................................................................................. 4-63
4.3.3 Buyer’s Information......................................................................................................................... 4-63
4.3.4 Backward Integration ...................................................................................................................... 4-64
4.3.5 Substitute Products .......................................................................................................................... 4-65
4.3.6 Price/Total Purchases...................................................................................................................... 4-65
4.3.7 Impact On Quality ........................................................................................................................... 4-66
4.3.8 Brand Identity .................................................................................................................................. 4-66
4.3.9 Buyer Profit ..................................................................................................................................... 4-66
4.4 Substitution Threat .................................................................................................................................... 4-67
4.4.1 Relative Price Performance Of Substitutes...................................................................................... 4-67
4.4.2 Switching Costs................................................................................................................................ 4-67
4.4.3 Buyers Propensity To Substitute ...................................................................................................... 4-68
4.5 Conclusion................................................................................................................................................. 4-68
5 Strategic Groups In Fan Industry .............................................................................................................. 5-69
5.1 Strategic Groups Based Upon Price And Quality...................................................................................... 5-70

5.1.1 Strategic Group Comprising Large Scale Manufacturers ............................................................... 5-70
5.1.2 Strategic Group Comprising Medium Scale Manufacturers............................................................ 5-71
5.1.3 Strategic Group Comprising Small Scale Manufacturers................................................................ 5-71
5.1.4 Mobility Barriers ............................................................................................................................. 5-72
5.1.4.1 Technological Capability .............................................................................................................................5-72
5.1.4.2 High Brand Equity .......................................................................................................................................5-72
1-4
5.1.4.3 Financial Resources .....................................................................................................................................5-72

5.2 Strategic Groups Based Upon Product Line And Distribution Channel.................................................... 5-72
5.2.1 Strategic Group Using Retailers/Dealers ........................................................................................ 5-73
5.2.2 Strategic Group Using General Mass Distribution ......................................................................... 5-73
5.2.3 Strategic Group Using Limited Dealership And Company Owned Outlets ..................................... 5-73
5.2.4.1.1 VOLUMES........................................................................................................................................5-74
5.2.4.1.2 Managerial Capability .......................................................................................................................5-75
5.2.4.1.3 Financial resources ............................................................................................................................5-75
5.3 Strategic Groups Based On Market Penetration And Product Line .......................................................... 5-75
5.3.1 Strategic Group Comprising Firms With Rural Presence ............................................................... 5-75
5.3.2 Strategic Group Comprising Firms With Regional Presence.......................................................... 5-75
5.3.3 Strategic Group Comprising Firms With National Presence .......................................................... 5-76
5.3.4 Strategic Group Comprising Firms With International Presence ................................................... 5-77
5.3.5.1 Financial Resources .....................................................................................................................................5-77
5.3.5.2 Technological Capability .............................................................................................................................5-77
6 SWOT Analysis Of Strategic Groups......................................................................................................... 6-78
6.1 SWOT of Large Scale Manufacturers ....................................................................................................... 6-79

6.2 Manufacturing ........................................................................................................................................... 6-79
6.2.1 Strength............................................................................................................................................ 6-79
6.2.1.1 Technology...................................................................................................................................................6-79
6.2.1.1.1 VERTICAL INTEGRATION............................................................................................................6-79
6.2.1.1.2 Raw Material .....................................................................................................................................6-79
6.2.1.1.3 Vendor Relations ...............................................................................................................................6-79
6.2.1.1.4 Quality ...............................................................................................................................................6-80
6.2.1.2 Weakness .....................................................................................................................................................6-80
6.2.1.2.1 High Production Cost ........................................................................................................................6-80
6.2.1.2.2 Flexibility ..........................................................................................................................................6-80
6.2.1.3 Opportunity ..................................................................................................................................................6-80
6.2.1.3.1 Technology ........................................................................................................................................6-80
6.2.1.3.2 Mass Production ................................................................................................................................6-81
6.2.1.4 Threat ...........................................................................................................................................................6-81
6.2.1.4.1 CONSOLIDATION...........................................................................................................................6-81
6.2.1.4.2 Vendor Capability..............................................................................................................................6-81
6.2.2 Marketing......................................................................................................................................... 6-81
6.2.2.1 Strength ........................................................................................................................................................6-81
6.2.2.1.1 Broad Product Range.........................................................................................................................6-81
6.2.2.1.2 Innovative ..........................................................................................................................................6-82
1-5
6.2.2.1.3 Branding ............................................................................................................................................6-82

6.2.2.1.4 Distributor Network...........................................................................................................................6-82
6.2.2.1.5 Exports...............................................................................................................................................6-82
6.2.2.2 Weakness .....................................................................................................................................................6-82
6.2.2.2.1 Lack Of Control.................................................................................................................................6-82
6.2.2.2.2 Low Margin .......................................................................................................................................6-83
6.2.2.2.3 Feedback............................................................................................................................................6-83
6.2.2.3 Opportunity ..................................................................................................................................................6-83
6.2.2.3.1 Electricity Prices................................................................................................................................6-83
6.2.2.3.2 Export ................................................................................................................................................6-83
6.2.2.4 Threat ...........................................................................................................................................................6-83
6.2.2.4.1 Imports...............................................................................................................................................6-83
6.2.3 Finance ............................................................................................................................................ 6-84
6.2.3.1 Strength ........................................................................................................................................................6-84
6.2.3.1.1 Relation With Banks..........................................................................................................................6-84
6.2.3.1.2 Management Control System.............................................................................................................6-84
6.2.3.2 Weakness .....................................................................................................................................................6-84
6.2.3.2.1 Sub-Optimal Capital Structure...........................................................................................................6-84
6.2.3.2.2 Rudimentary Tools ............................................................................................................................6-84
6.2.3.3 Opportunity ..................................................................................................................................................6-84
6.2.3.3.1 Capital Market ...................................................................................................................................6-84
6.2.3.4 Threat ...........................................................................................................................................................6-85
6.2.3.4.1 Stringent Credit Policies ....................................................................................................................6-85
6.2.4 Human Resource.............................................................................................................................. 6-85
6.2.4.1 Strength ........................................................................................................................................................6-85
6.2.4.1.1 Skilled Management ..........................................................................................................................6-85
6.2.4.1.2 Labor Relationship ............................................................................................................................6-85
6.2.4.2 Weakness .....................................................................................................................................................6-85
6.2.4.2.1 Decision Making................................................................................................................................6-85
6.2.4.3 Opportunity ..................................................................................................................................................6-86
6.2.4.3.1 Consolidate ........................................................................................................................................6-86
6.2.4.3.2 International Presence........................................................................................................................6-86
6.2.4.4 Threat ...........................................................................................................................................................6-86
6.2.4.4.1 Training Institution ............................................................................................................................6-86
6.3 SWOT Of Medium Scale Manufacturers .................................................................................................. 6-86
6.3.1 Manufacturing ................................................................................................................................. 6-86
6.3.1.1 Strength ........................................................................................................................................................6-86
6.3.1.1.1 Indigenous Machinery .......................................................................................................................6-86
6.3.1.1.2 Raw Material .....................................................................................................................................6-86
6.3.1.2 Weakness .....................................................................................................................................................6-87
6.3.1.2.1 Technology ........................................................................................................................................6-87
1-6
6.3.1.2.2 Vertical Integration............................................................................................................................6-87

6.3.1.3 Opportunity ..................................................................................................................................................6-87
6.3.1.4 Threat ...........................................................................................................................................................6-87
6.3.1.4.1 Consolidation.....................................................................................................................................6-87
6.3.2 Marketing......................................................................................................................................... 6-88
6.3.2.1 Strength ........................................................................................................................................................6-88
6.3.2.1.1 Regional Focus ..................................................................................................................................6-88
6.3.2.2 Weakness .....................................................................................................................................................6-88
6.3.2.2.1 Product...............................................................................................................................................6-88
6.3.2.2.2 Innovation..........................................................................................................................................6-88
6.3.2.3 Opportunity ..................................................................................................................................................6-88
6.3.2.3.1 Exports...............................................................................................................................................6-88
6.3.2.4 Threat ...........................................................................................................................................................6-89
6.3.2.4.1 Competition .......................................................................................................................................6-89
6.3.2.4.2 Forward Integration ...........................................................................................................................6-89
6.3.3 Finance ............................................................................................................................................ 6-89
6.3.3.1 Strength ........................................................................................................................................................6-89
6.3.3.1.1 Relation With Bank ...........................................................................................................................6-89
6.3.3.2 Weakness .....................................................................................................................................................6-89
6.3.3.2.1 Financial Practices.............................................................................................................................6-89
6.3.3.2.2 Management Control Systems ...........................................................................................................6-90
6.3.3.3 Opportunity ..................................................................................................................................................6-90
6.3.3.3.1 Subsidized Loan ................................................................................................................................6-90
6.3.3.4 Threat ...........................................................................................................................................................6-90
6.3.3.4.1 Stringent Credit Policy ......................................................................................................................6-90
6.3.4 Human Resource.............................................................................................................................. 6-90
6.3.4.1 Strengths ......................................................................................................................................................6-90
6.3.4.1.1 Labor Relationship ............................................................................................................................6-90
6.3.4.2 Weaknesses ..................................................................................................................................................6-91
6.3.4.2.1 Low Wages ........................................................................................................................................6-91
6.3.4.2.2 Skilled Management ..........................................................................................................................6-91
6.3.4.2.3 Lack Of Supervision ..........................................................................................................................6-91
6.3.4.3 Opportunities................................................................................................................................................6-91
6.3.4.3.1 Training Institute ...............................................................................................................................6-91
6.3.4.4 Threats..........................................................................................................................................................6-91
6.3.4.4.1 Shifting Of Technical Labor Employed On Contract ........................................................................6-91
6.4 SWOT Small-Scale Manufacturer............................................................................................................. 6-92
6.4.1 Manufacturing ................................................................................................................................. 6-92
6.4.1.1 Strength ........................................................................................................................................................6-92
1-7
6.4.1.1.1 Low-Cost ...........................................................................................................................................6-92

6.4.1.1.2 Flexibility ..........................................................................................................................................6-92
6.4.1.1.3 Lead Time..........................................................................................................................................6-92
6.4.1.1.4 Capital Outlay....................................................................................................................................6-92
6.4.1.2 Weakness .....................................................................................................................................................6-93
6.4.1.2.1 Quality ...............................................................................................................................................6-93
6.4.1.2.2 Dependence .......................................................................................................................................6-93
6.4.1.2.3 Economies Of Scale...........................................................................................................................6-93
6.4.1.2.4 Technology ........................................................................................................................................6-93
6.4.1.3 Opportunity ..................................................................................................................................................6-93
6.4.1.3.1 Consolidation.....................................................................................................................................6-93
6.4.1.3.3 Mass Production ................................................................................................................................6-94
6.4.1.4 Threat ...........................................................................................................................................................6-94
6.4.2 Marketing......................................................................................................................................... 6-94
6.4.2.1 Strength ........................................................................................................................................................6-94
6.4.2.1.1 Higher Margins..................................................................................................................................6-94
6.4.2.1.2 Rural Markets ....................................................................................................................................6-94
6.4.2.2 Weakness .....................................................................................................................................................6-95
6.4.2.2.1 Reach .................................................................................................................................................6-95
6.4.2.3 Brand Awareness .........................................................................................................................................6-95
6.4.2.3.1 Product Range ...................................................................................................................................6-95
6.4.2.4 Opportunity ..................................................................................................................................................6-95
6.4.2.4.1 Exports...............................................................................................................................................6-95
6.4.2.4.2 Buying Power ....................................................................................................................................6-95
6.4.2.5 Threat ...........................................................................................................................................................6-96
6.4.2.5.1 Quality Awareness.............................................................................................................................6-96
6.4.2.5.1.1 Innovative Products........................................................................................................................6-96
6.4.2.5.1.2 Energy Prices..................................................................................................................................6-96
6.4.3 Finance ............................................................................................................................................ 6-96
6.4.3.1 Strengths ......................................................................................................................................................6-96
6.4.3.1.1 Low Stakes ........................................................................................................................................6-96
6.4.3.2 Weaknesses ..................................................................................................................................................6-96
6.4.3.2.1 Access To Banks ...............................................................................................................................6-96
6.4.3.2.2 Management Control Systems ...........................................................................................................6-97
6.4.3.2.3 Financial Practices.............................................................................................................................6-97
6.4.3.3 Opportunities................................................................................................................................................6-97
6.4.3.3.1 Government Support..........................................................................................................................6-97
6.4.3.4 Threats..........................................................................................................................................................6-97
6.4.3.4.1 Tax Structure .....................................................................................................................................6-97
1-8
6.4.4 Human Resource.............................................................................................................................. 6-98

6.4.4.1 Strength ........................................................................................................................................................6-98
6.4.4.1.1 Temporary Labor...............................................................................................................................6-98
6.4.4.2 Weakness .....................................................................................................................................................6-98
6.4.4.2.1 Skill Level .........................................................................................................................................6-98
6.4.4.2.2 Weak Management ............................................................................................................................6-98
6.4.4.3 Opportunity ..................................................................................................................................................6-98
6.4.4.3.1 Training Institute ...............................................................................................................................6-98
6.4.4.4 Threats..........................................................................................................................................................6-98
7 Value Chain Analysis Of Fan Industry ...................................................................................................... 7-99
7.1 Primary Activities.................................................................................................................................... 7-103

7.1.1 In Bound Logistics ......................................................................................................................... 7-103
7.1.1.1 RECEIVING ..............................................................................................................................................7-103
7.1.1.2 Warehousing/Inventory Control.................................................................................................................7-103
7.1.1.3 Vehicle Scheduling ....................................................................................................................................7-104
7.1.1.4 Returns To Suppliers..................................................................................................................................7-104
7.1.2 Operations ..................................................................................................................................... 7-105
7.1.2.1 Production Stages For Ceiling Fan.............................................................................................................7-105
7.1.2.1.1 Sheet Cutting ...................................................................................................................................7-105
7.1.2.1.1.1 Machines Involved .......................................................................................................................7-106
7.1.2.1.2 Rotor Casting Or Filling ..................................................................................................................7-106
7.1.2.1.3 Rotor Roughing ...............................................................................................................................7-106
7.1.2.1.4 Stator Turning..................................................................................................................................7-107
7.1.2.2 Winding Section.........................................................................................................................................7-107
7.1.2.2.1 Machines Involved ..........................................................................................................................7-107
7.1.2.3 Lathe Or Turning Section...........................................................................................................................7-107
7.1.2.4 Drilling And Tapping Section ....................................................................................................................7-108
7.1.2.5 Fitting And Assembling .............................................................................................................................7-108
7.1.2.6 Painting ......................................................................................................................................................7-108
7.1.2.7 Final Testing And Packaging .....................................................................................................................7-109
7.1.2.8 Blade Making.............................................................................................................................................7-109
1-9
7.1.2.9 Quality Checks ...........................................................................................................................................7-110

7.1.2.9.1 High Voltage Test............................................................................................................................7-110
7.1.2.9.2 Final Quality Checks .......................................................................................................................7-110
7.1.2.9.3 Power Consumption test ..................................................................................................................7-110
7.1.2.9.4 Current.............................................................................................................................................7-111
7.1.2.9.5 Revolutions Per Minute Checked ....................................................................................................7-111
7.1.2.9.6 Air Delivery.....................................................................................................................................7-111
7.1.2.9.7 Staff .................................................................................................................................................7-111
7.1.3 Outbound Logistics ........................................................................................................................ 7-113
7.1.3.1 Warehousing ..............................................................................................................................................7-113
7.1.3.2 Delivery......................................................................................................................................................7-113
7.1.3.3 Order Processing ........................................................................................................................................7-114
7.1.3.4 Scheduling..................................................................................................................................................7-114
7.1.4 Marketing And Sales...................................................................................................................... 7-115
7.1.4.1 Advertising.................................................................................................................................................7-115
7.1.4.2 Channel Selection ......................................................................................................................................7-116
7.1.4.3 Pricing........................................................................................................................................................7-116
7.1.4.4 Repairs And Services .................................................................................................................................7-116
7.2 Support Activities.................................................................................................................................... 7-117
7.2.1 Procurement .................................................................................................................................. 7-117
7.2.2 Technology Development............................................................................................................... 7-117
7.2.3 Human Resource............................................................................................................................ 7-118
7.2.3.1 Selection.....................................................................................................................................................7-118
7.2.3.2 Compensation.............................................................................................................................................7-119
7.2.3.3 Appraisal ....................................................................................................................................................7-119
7.2.3.4 Labor Relations ..........................................................................................................................................7-119
7.2.4 Firm Infrastructure ........................................................................................................................ 7-120
7.2.4.1 General Management .................................................................................................................................7-120
7.2.4.2 Finance.......................................................................................................................................................7-120
7.2.4.3 Accounting .................................................................................................................................................7-121
7.2.4.4 Legal ..........................................................................................................................................................7-121
8 Financial Practices In The Industry And The Role Of Financial Institutes. ........................................ 8-123
8.1 Financial Needs And Practices In The Industry ...................................................................................... 8-124

8.1.1 Large Scale Manufacturers............................................................................................................ 8-124
8.1.1.1 Debt To Equity Ratio .................................................................................................................................8-124
8.1.1.1.1 Difference In Financial Practices Of Gujrat And Gujranwala Sector ..............................................8-125
8.1.1.2 Magnitude And Need For Finances............................................................................................................8-125
8.1.1.3 Working Capital .........................................................................................................................................8-126
8.1.1.3.1 Pledge And Hypothecation ..............................................................................................................8-126
8.1.1.3.2 Letter Of Credit ...............................................................................................................................8-126
1-10
8.1.1.4 Capital Investment Decisions.....................................................................................................................8-126

8.1.1.5 Financial Markets And Institutions Used ...................................................................................................8-127
8.1.2 Medium Scale Manufacturers ........................................................................................................ 8-127
8.1.2.1 Debt To Equity Ratio .................................................................................................................................8-127
8.1.2.2 Working Capital .........................................................................................................................................8-127
8.1.2.2.1 Letter Of Credit ...............................................................................................................................8-128
8.1.3 Small Scale Manufacturers And Vendors ...................................................................................... 8-128
8.1.3.1 Magnitude And Need For Finances............................................................................................................8-128
8.2 Role Of Financial Institutions ................................................................................................................. 8-129
8.2.1 Banks ............................................................................................................................................. 8-130
8.2.1.1 Ceilings on the provision of credit. ............................................................................................................8-130
8.2.1.2 Lags In Disbursements ...............................................................................................................................8-130
8.2.1.3 Improper Risk Assessment.........................................................................................................................8-131
8.2.1.4 Lending Criteria Of Financial Institutions..................................................................................................8-131
8.2.1.5 Inadequate Systems Of Commercial Credit Analysis And Provisions .......................................................8-131
8.2.2 Development Financial Institutions............................................................................................... 8-131
8.2.2.1 Operational Inefficiencies ..........................................................................................................................8-132
8.2.2.2 Political Pressure........................................................................................................................................8-132
9 Government Relations ............................................................................................................................... 9-133
9.1 Tax Structure ........................................................................................................................................... 9-134

9.1.1 Income tax...................................................................................................................................... 9-134
9.1.2 Sales Tax........................................................................................................................................ 9-134
9.1.3 Local Taxes.................................................................................................................................... 9-136
9.2 Proposed Tax Structure By Fan Manufacturers....................................................................................... 9-136
9.2.1 Income Tax .................................................................................................................................... 9-136
9.2.1.1 VIP Status ..................................................................................................................................................9-136
9.2.1.2 New Assessee.............................................................................................................................................9-137
9.2.1.3 Harassment by Tax Department .................................................................................................................9-137
9.2.1.4 Self Assessment Scheme ............................................................................................................................9-137
9.2.1.5 Fixed Tax Scheme For Small Business ......................................................................................................9-138
9.2.1.6 With Holding Tax Rate ..............................................................................................................................9-138
9.2.1.7 Income Tax Deducted By Banks................................................................................................................9-139
9.2.1.8 Concessional Rate Of Taxation..................................................................................................................9-139
9.2.1.9 Appeal Fees................................................................................................................................................9-140
9.2.2 Sales Tax........................................................................................................................................ 9-140
9.2.2.1 Minimum Penalty.......................................................................................................................................9-140
9.2.2.2 Penalty For Delay In Payment....................................................................................................................9-140
9.2.2.3 Rate Of Sales Tax......................................................................................................................................9-140
9.2.3 Wealth Tax ..................................................................................................................................... 9-140
1-11
9.2.3.1.1 Exemption .......................................................................................................................................9-140

9.2.3.1.2 Value Of Properties .........................................................................................................................9-141
9.2.3.1.3 Wealth Tax To Be Abolished ..........................................................................................................9-141
9.2.3.2 Exports Of Electric Fans ............................................................................................................................9-141
9.2.3.3 Excise Duty ................................................................................................................................................9-142
9.2.3.4 Zilla Tax.....................................................................................................................................................9-142
9.2.3.5 Miscellaneous.............................................................................................................................................9-142
9.2.3.5.1 Reduction Of Tax Collecting Departments......................................................................................9-142
10 International Markets.............................................................................................................................. 10-144
10.1 Fan Exports From Pakistan............................................................................................................... 10-145

10.1.1 Direction And Concentration Of Pakistan Exports ..................................................................... 10-145
World Markets ................................................................................................................................................ 10-146
10.2.1 Early Entry Markets..................................................................................................................... 10-149
10.2.2 Late Entry Markets ...................................................................................................................... 10-149
10.2.3 Africa ........................................................................................................................................... 10-149
10.2.4 Asia .............................................................................................................................................. 10-149
10.2.5 Central America........................................................................................................................... 10-150
10.2.6 Europe ......................................................................................................................................... 10-150
10.2.7 North America ............................................................................................................................. 10-150
10.2.8 South America.............................................................................................................................. 10-151
10.3 Potential Markets.............................................................................................................................. 10-151
10.3.1 Bangladesh .................................................................................................................................. 10-151
10.3.2 Iran .............................................................................................................................................. 10-151
10.3.3 Sri Lanka...................................................................................................................................... 10-152
10.3.4 Indonesia ..................................................................................................................................... 10-152
10.3.5 Malaysia ...................................................................................................................................... 10-152
10.3.6 Turkey .......................................................................................................................................... 10-153
10.3.7 Yemen........................................................................................................................................... 10-153
10.3.8 Saudi Arabia ................................................................................................................................ 10-153
10.3.9 United Arab Emirates .................................................................................................................. 10-154
10.3.10 Bahrain ................................................................................................................................... 10-154
10.3.11 Oman....................................................................................................................................... 10-155
10.3.12 Qatar....................................................................................................................................... 10-155
10.3.13 Kuwait ..................................................................................................................................... 10-155
10.3.14 Jordan ..................................................................................................................................... 10-156
10.3.15 Lebanon .................................................................................................................................. 10-156
10.3.16 Egypt ....................................................................................................................................... 10-156
10.3.17 Kenya ...................................................................................................................................... 10-157
1-12
10.3.18 Russian Federation ................................................................................................................. 10-157

10.3.19 Kazikistan/Ukraine/Uzbekistan............................................................................................... 10-157
10.3.20 South African CUS.UN ........................................................................................................... 10-158
10.4 Conclusion........................................................................................................................................ 10-158
10.4.1 Existing Export Markets .............................................................................................................. 10-158
11 Detailed Recommendations ..................................................................................................................... 11-160
11.1 Financial Reforms............................................................................................................................. 11-161

11.1.1 Change Of Lending Criteria For Small And Medium Enterprises .............................................. 11-162
11.1.2 Role of Pakistan Electric Fan Manufacturer’s Association......................................................... 11-163
11.1.3 Use Of Formal Contracts With Buyers ........................................................................................ 11-163
11.1.4 Third Party Intermediation .......................................................................................................... 11-163
11.2 Improvement In Operations.............................................................................................................. 11-164
11.2.1 Develop Vendors.......................................................................................................................... 11-164
11.2.1.1 Role Of Large-Scale Manufacturers ................................................................................................... 11-164
11.2.1.1.1 Incentive ........................................................................................................................................ 11-164
11.2.1.2 Role Of Medium/Small-Scale Manufacturers ..................................................................................... 11-165
11.2.1.2.1 Incentive ........................................................................................................................................ 11-165
11.2.2 Government Support .................................................................................................................... 11-166
11.3 Promotion Of Exports....................................................................................................................... 11-166
11.3.1 Availability Of Information Regarding Export Markets .............................................................. 11-166
11.3.2 Development Of Current Export Markets .................................................................................... 11-166
11.4 Government Regulations .................................................................................................................. 11-167
11.4.1 Fixed Tax Schemes ...................................................................................................................... 11-167
11.4.2 Consistent Government Policies .................................................................................................. 11-167
11.4.3 Rebates......................................................................................................................................... 11-167
11.4.4 Reduction In Import Duties.......................................................................................................... 11-168
11.4.5 Incentive For Installation Of Modern Plants............................................................................... 11-168
11.5 Role of Pakistan Electric Fan Manufacturer’s Association .............................................................. 11-168
12 Methodology ............................................................................................................................................. 12-170
12.1 Objectives ......................................................................................................................................... 12-171

12.2 Research Methodology ..................................................................................................................... 12-171
12.2.1 Secondary Data ........................................................................................................................... 12-171
12.2.2 Primary Data ............................................................................................................................... 12-171
12.2.3 Research Technique..................................................................................................................... 12-172
12.2.4 Survey Type.................................................................................................................................. 12-172
12.2.5 Sampling Plan.............................................................................................................................. 12-172
1-13
12.2.6 Target Population ........................................................................................................................ 12-173

12.2.6.1 Manufacturers ..................................................................................................................................... 12-173
12.2.6.2 Vendors............................................................................................................................................... 12-173
12.2.6.3 Distributors/Retailers .......................................................................................................................... 12-173
12.2.6.4 Financial Institution ............................................................................................................................ 12-173
12.2.7 Sampling Method ......................................................................................................................... 12-173
12.2.7.1 Manufacturers ..................................................................................................................................... 12-173
12.2.7.2 Vendors............................................................................................................................................... 12-174
12.2.7.4 Financial Institutions........................................................................................................................... 12-174
12.2.8 Sample Size .................................................................................................................................. 12-174
12.2.8.1 Manufacturers ..................................................................................................................................... 12-174
12.2.8.2 Vendors............................................................................................................................................... 12-174
12.2.8.4 Financial Institutions........................................................................................................................... 12-175
12.2.9 Data Gathering Instrument.......................................................................................................... 12-175
12.2.10 Questionnaire Design ............................................................................................................. 12-175
12.3 Limitation ......................................................................................................................................... 12-175
13 Appendix A: Questionnaire..................................................................................................................... 13-177
13.1 Detailed interview with Manufacturers and Vendors ....................................................................... 13-178

Detailed questionnaire for distributors............................................................................................................ 13-189
13.3 Questionnaire for financial institutes................................................................................................ 13-192
14 Appendix B. Trade Statistics................................................................................................................... 14-193
15 Appendix C: Interviews........................................................................................................................... 15-211
15.1 Manufacturers................................................................................................................................... 15-212

15.2 Vendors ............................................................................................................................................ 15-217
16 Bibliography ............................................................................................................................................. 16-223
1-14
List Of Tables
Table 1Advertising And Promotional Expenditure By Different Segments Of The Industry. ................................ 3-36
Table 2 Share In Different Segments Of The Regional Market............................................................................... 3-41
Table 3 Power Consumption (Watts/Hour) ............................................................................................................. 3-42
Table 4 Distribution Channel................................................................................................................................... 3-49
Table 5 Sales Tax Structure..................................................................................................................................... 4-54
Table 6 Average Number Of Years For The Vendors ............................................................................................. 4-64
Table 7 Quality Control Department ..................................................................................................................... 7-113
Table 8 Sales tax structure..................................................................................................................................... 9-135
Table 9 Quantity Share Of Pakistan Exports To Different Countries.................................................................. 10-145
Table 10 Export of fans from Pakistan (1993 – 1997)......................................................................................... 10-145
Table 11World Exports of fans............................................................................................................................ 10-148
Table 12 Selected World Trade Statistics............................................................................................................ 10-148
Table 13 Top Five Potential Early Markets......................................................................................................... 10-159
List Of Figures
Figure 1 Number Firms In Fan Industry.................................................................................................................. 2-26
Figure 2 Total Investment In Fan Industry. ............................................................................................................. 2-27
Figure 3 Employment In Fan Industry..................................................................................................................... 2-29
Figure 4 Total Revenues Generated By Fan Industry.............................................................................................. 2-30
Figure 5Porters analysis of the industry................................................................................................................... 3-33
Figure 6 Strategic Groups Based On Price And Quality.......................................................................................... 5-71
Figure 7 Strategic Groups Based On Product Line And Distribution Channel....................................................... 5-74
Figure 8 Strategic Groups Based On Market Penetration And Product Line. ......................................................... 5-76
Figure 9 Value chain analysis of large scale manufacturers .................................................................................. 7-100
Figure 10 Value Chain Analysis Of Medium Scale Manufacturers...................................................................... 7-101
Figure 11 Value Chain Analysis Of Small Scale Manufacturers........................................................................... 7-102
Figure 12Average Price Of Fans Exported From Pakistan.................................................................................. 10-146
1-15
1 Executive Summary
1-16
1.1 Objectives Of The Research
The purpose of the study is to help Small and Medium Enterprise Development Authority
(SMEDA) achieve its objectives which are
· Revitalize the economy through aggressive launch of S.M.E support program.
· Generate massive employment opportunities at lower costs
· Drive industrial growths towards value added exports.
The objectives of the this research study on Fan Industry are to
· Propose recommendations, which will help SMEDA to propose policies and proposals for
development of fan industry.
· To analyze the dynamics of the fan industry, evaluate the value chain of this industry and to
study the market forces as to remove if any asymmetry of information are prevailing in the
following markets
· Financial market
· Labor force market
· Technological market
· Institutional market
1.2 Research Methodology
· Research methodology for collecting information regarding the domestic industry was
composed to two parts
· Primary data collection
· Secondary data collection
In depth interviews were used as primary mode of data collection activity. The reason for
choosing in – depth interviews was to collect detailed information from the respondent regarding
the practices of the industry. These interviews also helped in gathering minute information
1-17
regarding industrial operations and norms, where as highlighting the difficulties faced by these
manufacturers.
· The sample size for the in – depth interviews was 5 from each segment of the industry i.e.
large scale manufacturers, medium scale manufacturers and small scale manufacturers,
whereas from other 3 – 5 interviews were conducted from other members of the value chain
i.e. suppliers, distributors and financial institutions.
· Realizing that the sample size in case of medium scale manufacturers and small-scale
manufacturers is less a separate drop in questionnaire in urdu was distributed amongst
medium scale manufacturers (10) and small-scale manufacturers (10). The purpose of this
was not to statistically signify the results of the findings of the interviews rather their
significance was to get a broader view of the prevalent practices in the industry.
· The purpose of secondary data was to collect information regarding small and medium
enterprises and fan industry. The data gathered helped researchers in understanding the past
of the industry and better designing of the research. The secondary data also helped in
studying the government regulations and export statistics of the world and local market.
· Information regarding export and potential markets was gathered through PC TAS software
proprietary product of United Nations Center for Trade and Development. And through
correspondence with major international importers and traders.
1.3 Key Findings Of The Research
· The industry is divided into two major segments Manufacturers/Assemblers and Vendors.
The total number of assemblers are 478 (which are operating in the season 1998 – 1999).
This segment employs about 10,000 – 11,000 workers (Average No. Of workers/Firm = 250
large scale manufacturers; 75 in medium scale manufacturers and 10 Small scale
manufacturers). The total number of vendors in the industry are 1000 employing at an
average of 5 workers per assembler.
· Value added by the Manufacturers is Rs. 2 billion whereas the total value added by the
vendor segment is Rs. 500 million.
1-18
· There are 8 Large-scale manufacturers, 50 Medium scale manufacturers and 420 Small scale
manufacturers. The share between these players is divided as 60% with large scale
manufacturers and 40% of the rest of the 3.3 million unit (Rs. 3 billion) domestic market is
shared by the rest of the players, where in this the medium scale manufacturers dominate the
small scale manufacturers.
· The utilized capacity of the industry is estimated to be 37.9%. The total output of the industry
in year 1997 – 1998 is 3.3 million units; where as the installed capacity of the industry is 8.7
million units. The total domestic demand for the year 1997 – 1998 according to the 8th
Annual Plan by the Government of Pakistan was estimated to be 2.3 million units by new
dwellings and 500 thousand units by the industrial sector.
· Domestic industry has been growing at a rate of 10%, whereas the growth rates of different
segments are different. The growth of the industry is dependent upon the growth rate of
economy and buying power of the consumer. Large scale manufacturers have been growing
at a rate of 12% - 13%. The medium scale manufacturers have been loosing market share to
large scale manufacturers who have filled the product gap by introducing slightly low quality
fans to provide for the price sensitive segment of the industry which was previously catered
by the medium scale manufacturers.
· Large scale manufacturers have formed a strong group in the industry and are not threatened
by other segments of the industry. Their business is closely held within the family and it is
difficult to break or penetrate their strong hold. Their investments in machinery and
equipment and brand equity are very much higher than the other segments.
· The total investment in the industry is around Rs. 3 billion. Capital investments by the large
scale manufacturers are around Rs. 200 million to Rs. 300 million, whereas in the medium
scale manufacturers and small scale manufacturers the capital investments are Rs. 5 to Rs. 10
million and Rs. 200,000 to Rs. 500,000 each.
· The technological capability of the domestic industry at the moment is sufficient to cater for
the local market but it can only compete in some of the foreign markets. The average price of
exported fan by Pakistan Manufacturers is $22 as compared to prices of fans exported by
1-19
China ($ 7.42) and Thailand ($ 16.4). This differential in the price of the fan is mainly due to
expensive imported raw material and inefficient manufacturing processes.
· There is evidence of collaborative efforts amongst all segments of the industry. However,
these efforts are remain only in utilizing benefits of collective bargaining while importing
raw material or distribution of goods within the country. There has been little sharing of
information regarding technology and or of collective efforts in exploiting the potential in
foreign markets between the players. However, collective efforts are more prevalent in small
scale manufacturers and medium scale manufacturers have now realized the potential gains
that can be had by such efforts.
· Quality of machinery employed in the industry is better in the upper segments of the
industry, where the large segment is using CNC and automatic presses. The medium scale
manufacturers and small scale manufacturers, however, commonly use local machinery. This
causes the quality variance amongst different segments of the industry. Apart from this the
quality of raw material used by large scale manufacturers is of better grade (imported electric
sheet and better insulation material and copper wire) as compared to other two segments
which cannot use such material because of the high prices.
· The use of financial market is minimum in the industry; even the larger players in the
industry have negligible debt financing. Financial intermediaries are used more often for
short term capital financing or while doing foreign transactions (only by some of the large
scale manufacturers and medium scale manufacturers.). The small scale manufacturers also
use these services for short term finances though the use by them is minimal. The growth is
internally financed however leasing practices are common in the upper segment of the
industry.
· The sub - optimum debt structure employed in the industry is one of the main reasons for the
industry not being able to grow to its potential and not allowing the firms in the industry to
maximize their value. The main reason for the industry in not being able to benefit from the
financial markets is the lack of expertise regarding the utilization of optimum debt structure
within the organizations.
1-20
· Financial institutes have played a key role in establishment of small and medium enterprise
sector in the economy. However, because of lack of formal documentation of business
transactions and records and assets for collateral, the financial institutes find it hard to
finance the growth of the lower segment of the industry.
· The export efforts have been mostly done by the individual players without much assistance
from the government agencies.
· The markets currently suitable for exports are those which have same climatic conditions or
have hotter climatic conditions. There has been little exports to European nations, however,
the European market if explored can prove to be of major benefits.
· Large scale manufacturers dominate the international market where as the medium scale
manufacturers have recently tried to enter this market.
· Vendors are the most fragmented segment in the industry with very little bargaining power.
The technological capability of vendors has been not been growing significantly over the
years with the industry. The lack of technological skill and financial resources to invest in
technology by these vendors has hindered in their growth, forcing large scale manufacturers
to have 90% of operations in – house. Large scale manufacturers role in developing their
vendors in minimal with regard to transfer of technology when its new.
· Manufacturers have little control over their distribution channels in the industry. Credit lines
are established with distributors and retailers who misuse these credit facilities by investing
them in their businesses, creating difficulties for the manufacturers in recovering their
investments. There is little price control by the manufacturers over their distributors or
retailers. However, recently manufacturers (Lahore Fan and Royal Fan) have tried to regain
control and implement their policies regarding credit lines and end consumer prices.
1.4 Recommendations
Fan industry has been established in Pakistan for over 40 years and has reached capability where
it can export its products to international markets and earn precious foreign exchange. The
quality of the product is comparable internationally in some markets. Whereas it has the potential
to benefit from other markets the industry at this stage requires support from government
1-21
agencies and financial institutions. Countries like Taiwan, Korea, Singapore, Japan and China
have been successful in developing competitive advantage over other nations by promoting those
industries which were strong domestically. Technological capability of the industry has been
improving over the years but now has reached a stage where without help it cannot improve. The
industry over these 40 years has developed a strong labor force and support industry along with
expertise in the industry. These factors are critical in developing comparative advantage in any
industry. The recommendations to improve the overall capability of the industry with special
reference to vendors and small scale manufacturers are discussed below
· Government should promote exports of fans to the existing markets by providing the fan
manufacturers with the information regarding existing and potential export markets. The role
of commercial attaches in providing with the relevant information should be emphasized.
· Government should provide incentives for exports such as rebates and decreasing the duty on
imported raw material. Currently the duty on electric sheet is 10%, small scale manufacturers
and medium scale manufacturers cannot afford to use this material which is critical to the
quality of the fan as the use of metal sheet determines the consumption wattage. Being able
to use this these manufacturers stand a better chance to export their products to foreign
markets.
· Government already has trade agreements with certain very attractive foreign markets e.g.
Russian States (Import market is 112,000 units). Where government can effectively promote
the domestic fan market.
· Government should give incentives to promote technological improvements in the process.

This will help in being able to reduce costs and to enter markets which are dominated by less
expensive international players like China and Taiwan.
· Banks should view SMEs as long term positive cash flow generating entities rather than short
term risky investments and should take more active part in their development. The domestic
financial sector has in the past been involved in the initial stages of setting up of the SMEs;
however, their participation after the initial stage has been negligible. As the vendors. Small
scale manufacturers and medium scale manufacturers do not have the financial muscle to
1-22
invest in technology; they need this financial assistance from the banks. The development of
vendor industry is also important, as it will increase the capability of the industry.
· Banks while dealing with vendors and small scale manufacturers should give more attention
to cash flow generation capability of the applicant than the ability of providing with adequate
collateral.
· Banks should develop capabilities to do such credit analysis for the SMEs. This will increase
the costs of the banks but the quality of loans will also increase and the bank will have a
more attractive and diversified portfolio. To avoid such costs banks can also utilize the
services of a third part assessment organization e.g. Small and Medium Enterprise
Development Authority.
· Banks can also extend finances to small scale manufacturers and vendors through Pakistan
Electric Fan Manufacturers Association, whose role can be either act as guarantor for the
party applying for the loan or as provider of information regarding the business of the
applicant. This will provide for additional security in the form of either a guarantee from
PEFMA or information regarding the nature of clients business and overall industry situation.
Banks can also as a proof for client’s volume of business use clients formal contracts with his
buyer, which in case of vendors will be fan manufacturer. This will also help the bank in
establishing the clients credit worthiness.
· Pakistan Electric Fan Manufacturers Association should provide for the information
regarding technological advancements in manufacturing processes. Apart from this it should
provide for training both in management and technical fields.
1-23
Analysis Of Fan Industry Of Pakistan Introduction
2 Introduction
2-24
2.1 Small And Medium Enterprise Development Authority
The objective of SMEDA’s inception is to promote Small and Medium Enterprises by removing
asymmetry of information from the market. Government of Pakistan has always realized the role
of SMEs in development of economy, in the past it has for this purpose chartered organization
like Industrial Development Bank of Pakistan and Small Business Finance Corporation.
However, in the past these organizations worked as lending agencies, which used to finance
SME projects. The role of SMEDA is different from other such institutes, as its purpose is not to
act as a lending agency but rather as an agent between the financial institutes and SME sector to
facilitate their dealing.
The objectives of SMEDA are to
· Revitalize economy through aggressive launch of SME support program
· Generate massive employment opportunities at lower costs.
· Drive industrial growth towards value added exports.
To achieve its objectives SMEDA has commissioned a number of studies on different SME
sectors including Textiles, Surgical Goods, Sports Goods and Light and Mechanical Engineering.
These research studies are for the purpose of completing the initial phase of collecting
information about the current status of each industry. The information collected through these
researches will then later be used in recommending policies for promotion of these industries.
2.2 Fan Industry
Fans have been manufacturing in Pakistan since its inception in 1947 and all of the fan
manufacturing is in the private sector. The fan industry is mainly clustered in the four major
cities namely, Gujrat, Gujranwala, Lahore and Karachi. This cluster meets the entire needs of the
country; producing fans with extended product types, models, designs, and colors. The product
line includes ceiling, pedestal, table, bracket or circomatic, exhaust, and louver fans. Sales are
also fairly concentrated with five large firms in Gujrat and two in Gujranwala, accounting for 40
per cent of total industry sales. The well established larger units are family owned operations,
managed by second generation. The Yunas family of Gujrat, with three units account for about
2-25
15 per cent of total industry sales. PAK Fans and Royal Fans are other major producers in
Gujrat. In
FIGURE 1 NUMBER FIRMS IN FAN INDUSTRY
1000
1000
800
420
600
400 50
8
200
LARGE SCALE MANUFACTRURERS MEDIUM SCALE MANUFACTURERS

SMALL SCALE MANUFACTURERS VENDORS
SOURCE: PAKISTAN ELECTRIC FAN MANUFACTURERS ASSOCIATION
Gujranwala, Asia Fans and Breeze Fans are the dominant players after the collapse of Climax
fans due to the management failure. On total there are about 550 fans manufacturing units in
Pakistan, with 340 units in Gujrat, 150 in Gujranwala, 25 in Lahore, 15 in Karachi and rest of
these units are located in several other cities. Of these units recorded in 1994, according to
estimates provided by PEFMA there are 8 operational large scale manufacturers, 50 small scale
manufacturers and 420 medium scale manufacturers. For vendors the estimate is about 1000
units.
Supplying a range of components, such as castings, blades, guards, down rods, and accessories
including plastic, rubber and electric parts, and sub-assemblies, mainly electrical motors to fan
manufacturers in Gujrat and Gujranwala.
The total investment in the industry is around Rs 3 billion, the individual investment by the
industrial players are given in Figure 2. The total employment in the industry is about 15000
workers the break up according to different segments of the industry is given in Figure 3. The total
2-26
revenues generated by the industry is around Rs. 4 billion and the annual revenues generated are
given in Figure 4 Total Revenues Generated By Fan Industry.
2.2.1 Large Scale Manufacturers

The total investment in the industry by this segment is about Rs. 2 billion. There are about 8
large scale manufacturers. The production of these players is between 60,000 units to 250,000
units annually. The annual revenues are about Rs. 70 million to Rs. 200 million. The average
investment in large scale manufacturers is of Rs. 250 million in equipment, plant and building.
The employment in these units is about 250 workers on average. Large units use imported raw
material and components, including electric steel sheets (ESS), ball bearings, and insulation
material. They employ sophisticated foreign equipment including high pressure die casting
machines, capstan and programmable turret lathes, universal milling machines, surface grinding
machines, automatic
FIGURE 2 TOTAL INVESTMENT IN FAN INDUSTRY.
2000
2000
R 1500
M
s
i 500
. 1000 450
o
I 84
.
n 500
0
FIRMS
LARGE SCALE MANUFACTURER MEDIUM SCALE MANUFACTURER

SMALL SCALE MANUFACTURER VENDORS
2-27
Multi spindle drills, and auto coil winding machines. These companies also have a range of
testing equipment such as watt meter, ammeter, volt meter, high voltage tester, tachometer (for
measuring rpm), and anemometer (for measuring air delivery). Local equipment includes lathes,
drilling machines, mechanical and hydraulic presses, and milling machines. However, these units
lack major R&D and material testing facilities. This is also the premium price segment, with
standard 56” ceiling fan retailing at around Rs. 1,500 to Rs. 1,800. Except for fan blades, guards,
dimmers (speed regulator), and few other small components, all other components are
manufactured in-house. Some manufacturing processes are subcontracted including aluminum
rotor filling and wire winding. For these processes, the contract workers typically worked within
the factory premises, using factory production facilities.
2.2.2 Medium Scale Manufacturers

Currently there are very few medium sized firms here in the fan industry in Pakistan. In 1998
there are about 50 operational units This segment is gradually vanishing from the screen, as the
large scale manufacturers are moving towards this segment also and eating up there share of the
pie. Firms in this segment produce 10,000 to 60,000 units per year. Investment in land, building
and equipment ranges from Rs. 5 million to Rs. 10 million. The total investment in this segment
is Rs. 500 million. Annual revenues are about Rs. 7 million to Rs. 25 million. These firms
employ mostly local machinery including rotary die casting machines, lathes, presses, and
drilling machines. Contrary to the large scale manufacturers these manufacturers have somewhat
smaller product line, with main focus on ceiling and pedestal fans. The 56” ceiling fan made by
this segment is priced at Rs. 1,200 to Rs. 1,500.
2-28
FIGURE 3 EMPLOYMENT IN FAN INDUSTRY.
5000
4200
5000
3750
4500
4000
W
N 3500
O
O 3000 2000
R
.
K 2500
E 2000
O
R
F 1500
S
1000
500
0
FIRMS
LARGE SCALE MANUFACTURERS MEDIUM SCALE MANUFACTURERS

2.2.3 Small Scale Manufacturers

There are about 420 small companies in this segment, which rely heavily on the vendors
industry. Most of the firms have small premises with very basic machinery such as lathe, drilling
machine, and air compressor valued at about Rs. 200,000. The total investment in this segment
of the industry is about Rs. 84 Million. Over 90 per cent of manufacturing is done outside the
factory premises. The operation done in house are mainly assembly, finishing, and painting, in
most of the cases on contract basis. Output of this segment ranges from 1,500 to 10,000 units per
year. Sales range from Rs.1.5 million to about Rs. 4 million. A 56” ceiling fan produced by this
segment retails at about Rs. 900.
2-29
FIGURE 4 TOTAL REVENUES GENERATED BY FAN INDUSTRY
1600
1600
1200
R
1400
s
1200 750
840
i 1000
n
800
M 600
i 400
o
200
.
0
FIRMS
LARGE SCALE MANUFACTURERS MEDIUM SCALE MANUFACTURERS
2.2.4 Vendors
There are about 1000 vendors in the industry, supplying to assemblers in the industry. The
employment by this segment is the highest employing around 5000 people. The average
investment in this segment is around Rs. 450,000. The revenues generated by this segment
annually are Rs. 1.2 billion. Technological capability of this segment needs to be upgraded as to
meet the technological needs of the large scale manufacturers and to better cater for the needs of
the medium scale manufacturers.
2-30
2.3 The Research
The objectives of the study is to propose recommendations which will help SMEDA to propose
policies and proposals for development of the fan industry.
The research is designed to analyze the dynamics of the fan industry, evaluate the value chain of
this industry and to study the market forces as to remove any asymmetry of information
prevailing in the different markets such as Financial markets, Labor force market, Technological
Market and Institutional markets.
To comprehend the dynamics of the industry the research will identify various players of the
value chain and will conduct SWOT analysis of these players. The research will also identify
different strategic groups within the industry.
The research will also focus on potential export market for this industry by looking at the
international trade statistics.
2-31
Analysis Of Fan Industry Of Pakistan Porter’s Analysis Of Manufacturers
3 Porter’s Analysis Of Manufacturers
3-32
FIGURE 5PORTERS ANALYSIS OF THE INDUSTRY
Barriers to Entry Bargaining Power of Suppliers

Favorable Neutral
High sales volumes required to compete The manufacturing technology is commonly available
effectively. Low volumes result in higher and there is a large number of suppliers.
production costs. Vertical integration does not provide any significant
Economies of scale low cost advantages due to the presence of specialized
Many strong brands along with private labels are vendors.
present in the market.
Leading companies have long ties with them.
Capital requirement is high for efficient production
facility.
Internal Rivalry
High
Market is dominated by five companies.
Hundreds of small companies are vying for market share.
Major companies are reducing their risk by diversifying in related businesses.
Availability of Substitutes Bargaining Power of Buyers

Depending on the Buyer Segment Unfavorable
Substitutes available for fans are room The end customers have a number of brands
coolers and air conditioners. Room coolers to choose from.
are ineffective in the monsoons and air Consumers from the lower Nome group are
conditioners are too expensive for an price sensitive.
average user of fans. Leading companies have started producing
Advent of plastic fans pose the greatest low quality fans hence increasing the price
threat to the sensitivity.
The unbranded fans have further contributed
to price cutting.
No monopsony effect as end users are
consumers
After sales service and repairs are important
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3.1 Barriers To Entry
Barrier to entry is an important determinant of the attractiveness of an industry. The research

revealed low entry barriers, although they varied across different segments of the industry.
Factors contributing to low barriers to entry are:
3.1.1 Economies Of Scale

The research revealed little or no evidence of economies of scale in the operations. This is due to
the fact that most of the manufacturers in the fan industry do not have the capability of mass
production. Their operations are designed for batch production. This production technique
inhibits them from realizing any benefits from economies of scale. Other than operations, some
of the players have been able to realize lower cost in areas such as procurement and marketing.
3.1.1.1 Large Scale Manufacturers

These players have the volumes, which justifies investment in machinery and allows them to
realize lower cost of production. Not only their cost of production is lower but also they are able
to negotiate better raw material prices and freight charges. This is due to the fact that they are
able to benefit from quantity discounts.
3.1.1.2 Medium Scale Manufacturers

The medium-scale manufacturers have invested in fixed assets such as plant and machinery.
These investments translate into high fixed cost. They are unable to reduce per unit fixed cost
due to low sales volumes. Also they face higher cost while purchasing raw material etc.
3.1.1.3 Small Scale Manufacturers
The small-scale manufacturers are basically assemblers with negligible investment in fixed
assets. Therefore there is little room for them to lower cost as a consequence of increasing
volumes. Also they undertake no promotional activities that removes another avenue for lower
costs.
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3.1.2 Fixed Costs

The fixed costs vary within the three segments depending upon level of vertical integration and
nature and type of machinery maintained by different firms. These costs are highest for the large
scale manufacturers and lowest for small scale manufacturers. The nature of fixed costs is
discussed under each segment.
Due to minimal outsourcing of parts, the investment by these players in machinery and facility is
relatively more than the industry. Their facility houses about 90% of their operations, where as
only less than 10% is out-sourced from the vendors.
Investments in machinery are in second hand imported machines or local top of the line
machines. They are also most advanced technologically when compared other players in the
industry. Some of the machines installed in the facilities are: automatic winding machines,
automatic stamping presses, plastic injection molding machines and CNC machines. These
investments in sophisticated machinery are in-line with their strategy of providing quality
product.
Investments in fixed assets by this segment are relatively less than the large scale manufacturers.
Although medium scale manufacturers own the production facility. But the size of the facility
and machinery employed is far less since they only perform 50% to 60% of the total operations.
Investments in the equipment are limited to lathe machines, which are used for manufacturing
rotors and stators. Most of the winding is performed using manual winding machines. Also most
of the machinery is local, which is less expensive than similar imported machinery.

This segment has made little investment in either plant or machinery. They are primarily
assemblers who outsource 100% of their manufacturing operation from vendors. The facility in
which the assembling operation is performed is rented in most cases. Other than assembling, the
only other activity carried out in-house is winding of the electric motor. Investment in winding
machinery is also limited since they have manual winding machines.
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3.1.3 Brand Identity

The large scale manufacturers and to some extent medium scale manufacturers have created
brand identity for their products through heavy advertising. The medium scale manufacturers
cannot match the promotional budget of the large scale manufacturers, which is evident from
theTable 1. Small scale manufacturers have spent their limited budget on trade promotions in the
form of higher retail margins, which are around 20% – 30 %.
TABLE 1ADVERTISING AND PROMOTIONAL EXPENDITURE BY DIFFERENT SEGMENTS OF THE

INDUSTRY.
INDUSTRIAL SEGMENT ADVERTISING AND PROMOTION
MEDIA HOARDING TRADE CONSUMER

PROMOTIONS PROMOTIONS
PRINT/TV
LARGE SCALE RS 5 TO 10 RS. 1 TO 3 RS. 2.5 TO 5 RS 1 TO 2 MIO

MANUFACTURERS MIO MIO MIO
MEDIUM SCALE RS. 500,000 RS. 200,000 RS. 300,000 TO RS. 30,000 TO
MANUFACTURERS TO 1 MIO. TO RS. 500,000 70,000
RS.500,000
SMALL SCALE - RS. 10,000 RS. 75,000 TO -

MANUFACTURERS TO 25,000 RS. 1 MIO.
SOURCE: INDUSTRIAL SURVEY

Brand equity has been developed through advertising and sponsoring sports and other activities.
Advertisements on television are primarily spots that describe the product benefits. Frequency of
advertising increases during the summer season and in the reaming year there is not much
activity by the fan manufacturers. Promotional activities on radio comprise program sponsorship.
In addition to these, large manufactures also sponsor sports like golf and other local melas etc.
Other than these activities this segment does not pursue any other trade or consumer promotional
activity.
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Over the years the investments in brand identity has resulted in high brand awareness among the
end-users. This increased awareness allows the large manufactures to charge premium for its
product.
Although this segment of the fan manufacturers invest in building brand identity but their efforts
are limited to billboards. They spend very little on television advertisement. Due to this low
expenditure on brand development, awareness among the end-users is lower as compared to the
large manufacturers. Since they have not been able to generate the pull for their products, they
have to rely on the distributors to push the products. For this purpose they offer slightly hire
margins than the large-scale manufacturers.
The small manufacturer do not undertake any promotional activity to develop the brand since it
is contradictory to their low cost strategy. They sell unbranded fans and since they have no brand
awareness they have to rely on the distributor to push their products. They offer the distributors
exorbitant margins in the ranging between 30%-40%.
3.1.4 Switching Costs
Switching costs within the industry are high for all segments in the industry. This is attributed
mainly to high capital locked into trade channels in form of trade credit. In addition very few
alternative business opportunities exist in Gujranwala and Gujrat hence increasing switching
costs for the manufacturers.
Switching costs of large scale manufacturers are high because of their investments in fixed
assets. Although these assets are not highly specialized; the magnitude of investment in them by
the manufacturers raises barriers to exit for them. Similarly, the investments made by these large
scale manufacturers into developing brand equity adds to their switching costs.
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3.1.4.2 Medium And Small Scale Manufacturers
Although switching costs for these segments as compared to large scale manufacturers are low
but are still considerably high. Though machines employed by them are general purpose e.g.
lathe machines. The magnitude of investments in the trade channels for each segment is
considerable, which increase the switching costs.
3.2 Rivalry amongst competitors
The intensity of rivalry in the fan industry has increased over the years. As a consequence of
increased competition the profitability of the player has decreased. Factors contributing to rivalry
are discussed below:
3.2.1 Industry Growth

The fan industry has been growing at 8-10% for the past few years. This decline in growth is due
to deteriorating economic condition of the country. Growth of the industry is driven by
development activities related to housing etc. The growth pattern of different segments in the
industry is discussed below.

The average growth experienced by the large-scale manufacturers is between 10-12%. Their
growth exceeds the growth of the industry. This growth has not been achieved by developing
new markets rather the large-scale manufacturers have grown at the expense of medium-scale
manufacturers. The large-scale manufacturers have driven the medium-scale manufacturers out
of the market by introducing low-priced fans for price sensitive consumers. The medium scale
manufacturers were previously catering to this price sensitive segment.
This segment is shrinking because of pressure from the large-scale manufacturers. According to
a rough estimate provided by the Chairman of Pakistan Electric Fan Manufacturer Association
the firms in this segment are operating at 7%–8% lesser capacity as compared to last year.
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The growth rate of this segment is minimal, about 2%–3%. These players are catering for price
sensitive rural consumers. The low growth experienced by this segment is due to cutbacks in
rural electrification budgets by the present government
3.2.2 Over-capacity
According to an estimate the industry currently working at 40% of its capacity this is based on
the following findings about the industry, which the study uncovered
3.2.2.1 Economic Downturn

The industry flourished between 1960–1980 due to supportive government policies and rapid
development in the country. Many medium and small enterprises mushroomed to cater to the
unmet demand. However, 90’s heralded the beginning of a recession, as a consequence the
growth in fan industry declined, and the market has become more competitive. The growth in the
capacity during the two decades and subsequent decline in the demand has resulted in idle
capacity in the industry.
3.2.2.2 Increased Competition
In 1990s the large scale manufacturers faced difficulties as the demand for quality fans declined
because of the deterioration in purchasing power of consumer. Large scale manufacturers in
order to broaden their customer base introduced low quality fans, which catered for the
customers that were previously being supplied by medium scale manufacturers. The large scale
manufacturers not only have more resources available to them and but also wider market
coverage. Therefore they were able to drive out medium scale manufacturers. Increased
competition in the low priced segment led to close down of medium scale firms.
This segment has invested in fixed assets: plant and equipment. Their capacity to supply metal
fans exceeds the demand. The estimated idle capacity experienced by this segment in metal fans
is around 30% - 40%. Although the natural consequence of excess capacity are price wars to
secure more market share. But there has been no downward pressure on prices. The players have
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been able to evade price war by colluding among themselves. They have divided the markets and
by restricting the access to competition they have been able to maintain prices.
The plague of excess capacity is limited to the metal fans, however plastic fans are in the growth
phase. The industry began investing in this category in the early 90’s and up-till now demand
exceeds supply.
3.2.2.4 Medium and Small Scale Manufacturers
These two segments primarily comprise assemblers. They out source (60% - 90% of total
operations) various operations and latter assemble parts in their facility. The facility where they
assemble is rented and most of the laborers they employ are temporary. Due to these factors
small scale manufactures are not troubled by the problems of idle capacity. Rather they are in a
position to adjust capacity to meet demand due to readily available labor and vendors. But the
medium scale manufacturers are experiencing severe excess capacity due to the introduction of
low quality fans by the large scale manufacturers.
3.2.3 Diversity of Competitors

There is little diversity within the industry and at present only seen amongst the large scale
manufacturers. Large scale manufacturers have diversified into production of washing machines
and water geysers in order to minimize the seasonal nature of their fan business. However, the
medium scale manufacturers also copy this trend to some extent.
Within the large scale manufacturers there is little diversity. Some of large scale manufacturers
have diversified into other products such as washing machines (G.F.C Fans, Asia Fans) and hot
geysers. The reason for this diversification in to these products is to reduce exposure to cyclical
nature of fan business.
3.2.3.2 Medium and Small Scale Manufacturers
This segment has not been able to diversify its businesses to related products. This lack of
diversity exposes them to seasonality of the fan industry. The reasons for lack of diversity is due
to financial constraints faced by this segment for investments.
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3.2.4 CONCENTRATION AND BALANCE AMONGST

COMPETITORS
The fan industry is fairly concentrated with large scale manufacturers accounting for over 50%
of the market share. The remaining market share is distributed among a number of medium to
small players.
Market share at national level is evenly distributed between the major players; however, there is
marked difference in the regional market shares. In Lahore, the market leader is Pak Fans with
35% share, followed by 30% share with Royal Fans. GFC Fans are dominant in the northern
regions of the country, whereas Millat Fans dominate the southern region (Karachi, Hyederabad
and other areas of Sind). An estimate of their share is given in Table 2.
TABLE 2 SHARE IN DIFFERENT SEGMENTS OF THE REGIONAL MARKET.
PLAYERS REGIONAL MARKETS
PUNJAB SIND NORTHERN AREAS BALUCHISTAN
PAK FANS 60% 30% 10%
ASIA FANS 80% 15% >5%
ROYAL <80% >20%
CLIMAX 95% 5%
YUNAS 95% 5%
This segment of manufacturers closely follows the industry leaders in terms of product design
and innovations. Since their product line is positioned for price sensitive end users therefore the
quality of the fans is inferior. This middle of the road strategy is difficult to sustain. The industry
leaders bridged the product gap by introducing fans, which fit the demand of the particular
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segment previously catered by the medium scale manufacturers, under different brand names.
This strategic move has wiped out the middle segment fan manufacturer.
3.2.4.3 Small scale manufacturers
This segment is highly fragmented as compared to the other two segments. The players in this
segment are catering to lowest segment of the market, which is highly price sensitive. These
players are dominant in the rural areas of the country. There is little rivalry amongst the
competitors, as much of the resources are shared amongst the players. At times if a manufacturer
is short on some parts, it can borrow it from its neighbor manufacturer.
3.2.5 Product Differentiation

There is limited product differentiation in the industry. Lack of differentiation is due to the fact
that it takes very short while for the manufacturers to imitate and introduce new products under
their brand name.
3.2.5.1 Large Manufacturers
Fan manufacturers in this segment produce similar fans even the warranty and after sale services
are same. Due to better quality of material such as enameled copper wire and electric steel
sheets, manufacturers of this segment are able to provide better quality fan to the end consumer
as compared to other two segments. Not only the fan produced by the large manufacturer is more
durable but it also consumes low power (wattage/hr) for a given speed. The comparison of
wattage consumed by the fans manufactured in the three segments of the manufacturers is given
in Table 3.
TABLE 3 POWER CONSUMPTION (WATTS/HOUR)
INDUSTRIAL SEGMENT POWER CONSUMPTION
LARGE SCALE MANUFACTURER LESS THAN 90 WATTS/HR
LARGE SCALE MANUFACTURER 90 – 100 WATTS/HR
SMALL SCALE MANUFACTURER MORE THAN 100 WATTS/HR
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Another factor that differentiates this segment from the others is that they are more innovative.
Introduction of plastic fans and remote control fans has been the initiative taken by large players.
3.2.5.2 Medium and small scale manufacturers
These segments of the fan industry exhibit very little product differentiation. Their main
competitive edge is cost leadership. They are able to maintain low cost because of lower
investment in machinery and use of lower quality raw material like local enameled copper wire
and drum/metal sheets. Limited product line offered by them also helps to realize lower cost.
3.2.6 Barriers To Exit

The exit barriers in the industry are unfavorable mainly because of two reasons i.e. heavy
investments made into trade channel and due to emotional barriers. Exit barrier increases with
the scale of manufacturing.

The exit barriers for large scale manufacturers are relatively higher than the other two segments.
3.2.6.1.1 Vertical Integration
One of the major reasons for relatively higher exit barriers in this segment is due to the
company’s commitment to the production of quality products hence the production strategy of
limiting outsourcing. This strategy requires heavy investments in plant and machinery. These
investments are a deterrent for these players to exit the industry.
3.2.6.1.2 High Brand Equity
They have not only made heavy investments in plant and machinery but they have also spent
heavily on advertising and promotion. This has led to high brand equity for their products. Due
to this investment the players are reluctant to exit the industry.
3.2.6.1.3 Strategic Interlinkages
Most of the large scale manufacturers are not only producing electric fans, but also some other
related products. These products include washing machines, electric motors, milk blenders and
desert coolers. Divestment of their fans division will have high impact on the production and
sales of these related products. Major reason, being the loss of ability for an exiting company to
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capitalize on the economies of scope as these products are manufactured along with the electric
fans. Another reason is that these companies are capitalizing the repute gained through sales of
fans and divestment of the flagship would make it harder to sell related products.
3.2.6.1.4 Emotional Barriers
In addition to the above-mentioned tangible factors, large-scale manufacturers have been in the
business of making fans for three generations or so. Therefore, due to emotional attachment to
the family businesses impedes their decision to exit even in the face of losses. Due to the
expertise and skills that these manufacturers and their families have developed over the extended
period of time, they have no other alternative businesses in which they can enter and compete
successfully.
We already established that exit barriers tend to rise with the scale of manufacturer, so the exit
barriers for medium scale manufacturer are less than the large scale manufacturers, but slightly
higher than the small scale manufacturers. There are several reasons for the lower exit barriers
for the medium/small scale manufacturers. One reason is the low investment in the specialized
assets and equipment.
There are very large number of small players in the market, which help in establishing the very
powerful second hand/used manufacturing machines market. Medium/small scale manufacturers
used these markets for the sale of second hand machines. Most of the owners of these small
manufacturers are the previous employees of large companies, who after getting the necessary
experience start their own production with the help of number of vendors. So the question of
emotions doesn’t arise in the case of small scale manufacturers, because these people are more
interested in the profitable running of the company and the adequate earnings for their family
rather than the emotions. Profitability is the only critical factor, which drive the decision of
exiting the industry for these small scale players. Exiting costs are not very significant due to the
low investment, small size, single product, limited market and heavy reliance on outsourcing.
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3.3 Bargaining Power Of Suppliers
Bargaining power of vendors is favorable, since the industry is highly fragmented as compared
to the fan manufactures. The vendor industry also is experiencing low capacity utilization. In
addition treat of plastic parts has further deteriorated the power of suppliers.
3.3.1 Number Of Important Suppliers

There are a number of alternative vendors available for individual parts of fan. Due to large
number of choices available to the fan manufacturers, the bargaining power of the vendor is
greatly reduced.
The large manufacturers’ product line can be broadly categorized as metal and plastic fans. The
metal fans include ceiling and pedestal fans. Whereas the plastic fans include bracket fans,
louver fans and exhaust fans. Different vendors supply plastic and metal parts. There are a large
number of metal parts vendors but any single vendor is unable to fulfill the demand of the large
fan manufacturers. Therefore these players out source a single part from a number of vendors.
As for the plastic parts some of the bigger players have in-house plastic injection molding
machines fulfilling their demand. Where as the remaining players rely on the plastic industry
vendors located in Gujranwala to satisfy their demand.
The main product line of the medium segment are metal fans. They include ceiling fans, pedestal
fans, table fans, exhaust fans and bracket fans. Individual vendors have the capacity to fulfil
demand of medium scale manufacturers. These players have wide choice of vendors of desired
quality. Most of them are located in Gujrat close to the medium size segment of the industry.
The operations of the small scale manufactures are limited to assembling. The product line
comprises metal fans. Because of this they have greater reliance on the metal parts vendors. This
segment also has a number of choices available to them regarding the selection of vendors. There
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are on average 30 vendors available for main metal parts like fan blades, metal stalk, lock nuts
and fan guards.
3.3.2 Availability of substitutes

Although traditionally substitutes of metal parts vendors were non-existent but now the industry
is moving towards plastic fan. As a consequence of this emergent trend the importance of metal
parts vendors has decreased and plastic parts vendor has gained importance.
The trend is towards the lightweight plastic fans, therefore metal parts currently being used in the
production of ceiling fans and pedestal fans will be replaced by plastic fans. The large scale
manufacturers have introduced plastic models. Increasing number of plastic models will wipe out
the metal parts vendors.

The firms in this segment have not yet entered the plastic fan fully. They have introduced a
couple of models of plastic fans. This includes bracket fans, which have some plastic parts. They
are out sourcing plastic parts from Gujranwala plastic industry.

These fan manufacturers have j limited product line. They presently have no plans of introducing
the plastic fans. Cost of the plastic injection molding machines and low availability of plastic
parts is the reason for delay in the introduction of plastic fans.
3.3.3 Switching Cost Of Suppliers Products

Due to large number of equally competent vendors, the switching cost for the fan manufacturers
is very low. The degree of switching cost varies with the three segments. But the switching cost
for the vendors is relatively high since the industry is currently experiencing a slump.

The large size segment has very low reliance on the suppliers. They have outsourced very small
number of parts. Because of the low reliance and wide variety of suppliers available they have
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low switching costs. They can switch to a number of players and their high volumes will give
them greater bargaining power. They also supply the designs of the products, which further
lowers the switching costs for them. However, on the other hand the risk for the supplier loosing
a big player is high because replacing the volumes lost will be difficult. The number of large size
players is small thereby increasing the switching costs for vendors.
The medium size segment have greater reliance on the vendors products but here again the
availability of 10-20 alternatives available for each part and since the manufacturers make no
contribution towards development of the vendors therefore the medium size manufacturers have
very low switching cost. On contrary the switching cost for the vendors is high because of the
trust and confidence developed which is necessary in case of credit sales. This blocked working
capital is also one of the reasons which increases the switching cost for the vendors.
The players in this segment of the industry have greatest dependence on the vendors, as they are
the ones who have out sourced majority of the parts, production processes is limited to
assembling. Due to supply demand gap have low switching costs. Whereas from the perspective
of the supplier with existing over capacity they are not in a position to loose customers and also
in order to recover the blocked cash they have higher switching costs as compared to the
manufacturer sides.
3.3.4 Suppliers Threat Of Forward Integration

Overall threat of the vendors integrating forward is low. The reason being that the vendor
industry is very fragmented. Vendors exclusively manufacture individual part of the fans. For
example the vendor of fan guards has facility specially designed to manufacture fan guards. Due
to little experience of manufacturing vendors have limited prospects regarding integration.
There are no chances of the existing vendors integrating forward and coming in competition with
the big players, which already have captured a big share of the market. The reason that the threat
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of forward integration from the vendors is non-existent is high barriers to entry. The barriers to
their entry include technology, high capital investments and managerial skills and infrastructure.
In the case of medium scale segment also the investments in the case of production facility are
high and the vendors here also lack financial resources and technical knowledge, which raises
the barriers to entry for them.

The small scale manufacturers face a threat of forward integration from well-established
vendors. The reason being that the barriers to entry and exit in this segment of the industry are
very low. They have installed 2-3 second hand general-purpose lathe machines and are
producing very low volumes. Another reason for the low barriers as their machinery is housed in
the rental facilities, which can be easily, is acquired. During the survey of the industry two three
such examples were seen. The names are Alcon Fans, which were initially making fan guards
and now are producing fans.
3.3.5 Industry Threat Of Backward Integration

Different segment of the industry exhibit varying degree of vertical integration. Analysis of the
threat of backward integration is as follows:
The large scale manufacturers already have high degree of vertical integration. The are out
sourcing metal parts which have very low impact on the quality of their finished product. Threat
of further vertical integration is very low from their side. It is expected that with the development
of the plastic and metal parts vendors, the bigger players will out source higher volumes to the
suppliers. This idea they have bought from the Korean and Thai markets where the fan
manufacturers are only the assembling and are enjoying economies of scale, which reduces their
cost of manufacturing.
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The players in this segment follow the big players. Presently they do not have financial resources
to vertical integrate but they intent to increase in house operation so as to have more control over
the product quality.

The players in this segment have very low volumes. The have outsourced all parts of the fan.
They neither have financial resources nor the sale volumes to justify the backward integration.
Hence they pose no threat of vertical integration from small size manufacturers. This strategy
allows them to realize low cost also want to keep there stakes low due to the threat of bigger
player entering into the lower segment of the market as they have previously entered into the
medium segment market.
3.4 Bargaining Powers Of Buyers
The bargaining power of the buyers in the industry is unfavorable and it increases as we go down
the segments i.e. from large scale manufacturers to small scale manufacturers. The factors, which
influence this bargaining power within the three segments, are as follows.
3.4.1 Number Of Important Buyers

The numbers of dealers employed by various segments of the fan industry are given in the
following table. Since the number of influential distributors are limited therefore the fan
manufacturers are highly dependent on them to push their products.
TABLE 4 DISTRIBUTION CHANNEL
LARGE SCALE MEDIUM SCALE SMALL SCALE

MANUFACTURERS MANUFACTURERS MANUFACTURERS
URBAN RURAL URBAN RURAL URBAN RURAL
DISTRIBUTORS 2-3 - - - - -
DEALERS/RETAILERS > 50 10 – 15 40 – 50 10 – 15 1–5 10 – 15
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3.4.1.1 Large Scale Manufacture

Since the large scale manufactures have developed brand equity for their products through heavy
advertising and promotional activities. Investment in brand awareness results in consumers
demanding their products from the distributors. Since distributors play little role in generating
demand for their products therefore their power over the manufacturers is limited
3.4.1.2 Medium And Small Scale manufacturer

End consumers have little awareness regarding the products of these segments. They rely on the
distributors to push their products. Due to this important role played by the distributors to
generate demand, the medium and small scale manufacture are relatively less powerful.
3.4.2 Availability Of Substitutes

The bargaining power of distributors is enhanced by the fact that their experience and network
developed to push fan can easily be used to distribute any other similar electrical appliances.
Also the location of the distributors is such that they have access to the electrical appliance
thereby increasing alternative to fans.
3.4.3 Buyer’s Switching Costs

Distributors’ switching costs varies across the three segments of manufacturers. Large scale
manufacturers are indispensable since there are few substitutes for their products. But for the
other two segments the switching cost is very low.

Since there are only 8 firms in this segment is limited to only 8; therefore distributors have
limited access to high quality fans. The only other substitutes available to buyers are the
imported fans. However, due to high prices imported fans are not much in demand. Furthermore,
as these players are actively engaged in advertising, they have the highest level of awareness
amongst the consumers. Therefore, retailers/dealers use leading brands as traffic builders. These
factors contribute to lower bargaining power of the buyers when dealing with large scale
manufacturers.
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There are a large numbers of firms in these two segments, manufacturing similar products.
Therefore there is little benefit associated with buying from any particular player except
association developed due to long ties.
3.4.4 Buyer’s Threat Of Backward Integration

There has been little incentive for the buyer to vertically integrate and there has been no example
of such practice in the industry in recent decades. The threat of buyer’s backward integration is
also minimal, as buyers do not have problems in researching the product from the manufacturers
at their terms.
3.4.5 Industry Threat Of Forward Integration

Overall, the industry has not tried to integrate forward. There has been recent attempts from
players in the middle segment to integrate forward e.g. Beeta Fans is operating a company
owned distributorship and repair center in Lahore from past three years and has plans to further
open these outlets in major cities of Punjab.
3.5 Availability Of Substitutes
Substitute products not only limit profits in normal times but they also reduce the bonanza an
industry can mine in boom times. Substitutes also temper the industry’s ability to raise prices and
to play at their own. As fans do not have complete substitutes, fan manufacturers in Pakistan are
not worried from the competition outside the fan industry. Fans do have substitutes, but these
substitutes are not very close to fans, e.g. desert cooler, air conditioners etc.
The threat of substitutes depends on two conditions. Manifestly, the more attractive the price-
performance trade-off offered by substitute products, the more firmly the lid is placed on the
industry’s profit potential. Switching costs from the industry’s product to the substitute also
modifies the threat of substitutes. In fan industry the switching costs are high, the very first
substitute to fans costs almost four times the cost of a fan. Keeping in consideration the state of
economy of Pakistan and the purchasing power of the people, we can generalized that switching
from fan to its nearest substitute desert coolers, is somewhat difficult and costly. Although there
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is a wide difference in the performance of fans and desert coolers, but the question is, A person
who can hardly afford an electric fan, would he be willing to invest four times to go for a high
performance substitute of a fan?
The other product, which is considered to be a substitute of fan, is air conditioner. Similarly to
desert coolers the switching cost from fan to air conditioner is very high, which is almost twenty
times the cost of fan. Another major problem with this substitute is the running cost, in the shape
of electricity bill. Rapidly rising energy prices in Pakistan, keep on discouraging people to utilize
electricity. Currently, the electricity prices are not affordable for middle and lower middle class
population, which is the major target market for fans.
Fan industry does have a threat from desert coolers but very little, whereas the air conditioner
industry is not a big problem for fan manufacturers. Because, the lowering purchasing power and
the declining per capita income do not allow customers to switch from fans to air conditioners.
So in our view, fans do have substitutes but here in Pakistan these substitutes are not a potential
threat to fan industry.
3.6 Conclusion
The detail analysis of the fan manufacturers has shown that presently the fan industry is pretty
unattractive for new entrants. The reasons for unattractiveness of the fan industry are: 1) Industry
rivalry is high contributing to low profitability of the manufacturers because of declining demand
as a result of reduced purchasing power of the consumer, low switching costs, low product
differentiation. 2) The barriers to entry are low caused by low economies of scale, as only large-
scale manufacturers are able to enjoy high economies of scale, low capital requirement as second
hand machinery is available at half the rates. 3) Threat of substitutes is low, as the only viable
substitutes are imported fans, which are discouraged by high import duties. 4) Buyer bargaining
power is moderately high mainly because of weak implementation of law regarding claim of
credit. 5) The supplier power is low as the vendor industry is fragmented and over ridden with
idle capacity.
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Analysis Of Fan Industry Of Pakistan Porter’s Analysis Of Vendors
4 Porter’s Analysis Of Vendors
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The overall vendor industry has been analyzed using Michael E. Porter five forces model. The
detail analysis and findings of the vendor industry are given as follows:
4.1 Entry Barriers
Though investments in machinery, raw material (as mostly supplied by the manufacturer) and
labor are minimal, which makes the industry lucrative; the excess capacity prevalent in the
industry and developed relationships between the buyers and sellers, make it difficult for the new
entrants. The existence of “baradari” circles also adds to entry barriers. Furthermore, as the
industry is highly concentrated around Gujrat and Gujaranwala cities there is little chance and
opportunity for entrepreneurs from other cities to enter into this market. The details about he
other factors contributing to entry barriers are explained as follows:
4.1.1 Economies Of Scale

There are insignificant economies of scale amongst the vendors of the industry. Vendors in the
industry have been able to achieve to some extent economies of scale; however, they have not
been able to successfully exploit this opportunity. The reasons for not being able to do this are as
follows;
4.1.2 Sales Tax Rule And Its Impact

The vendors in the industry fall into fixed sales tax bracket i.e. the sales tax is charged on the
basis of numbers of lathe machines employed in the firm. The structure of taxation is given in the
Table 5
TABLE 5 SALES TAX STRUCTURE
S. NO. CATEGORY OF FACTORIES LIABILITIES OF SALES TAX PER ANNUM

1 NOT MORE THAN 4 LATHES RS.13,500 PER LATHE.
2 5 TO 7 LATHES Rs.54,500 for the first 4 lathes plus Rs.27,000 per additional lathe.
3 8 TO 10 LATHES Rs.135,000 for the first 7 lathes plus Rs.40,500 per additional
lathe.
lathe.
5 ABOVE 15 LATHES Rs.594,000 for the first 15 lathes plus Rs.108,000 per additional
lathe.
Source: Industrial survey and PEFMA
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This has led to the practice of not having a certain number of machines under the same shed,
usually not greater than 4. This also has been the reason for greater fragmentation within the
industry and not encouraging consolidation.
However, the practice common amongst vendors is to achieve economies of scale by the
phenomenon known as “pseudo consolidation”. When demand increases the current capability of
the vendor. He waits to a point where it is feasible for him to set up another firm having a
minimum number of machines which cares for his increase in demand. The control of this set up
is either maintained by him or delegated to his next of kin.
Under this practice the benefits achieved by the vendors are as follows:
4.1.2.1 Greater Control Over The Business

As the control of the firm remains within the family, the owners have more control over the
utilization of resources across the firms.
4.1.2.2 Increased Purchasing Power
Purchasing of the raw material, wherever the raw material is common; is central. Which enables
the firm in exercising influence over their suppliers.
However, as mentioned above the benefits of economies of scale are not materialized completely
by the vendor. The areas in which the current practices are not letting the vendors use benefits
completely are as follows:
4.1.2.3 Increase In Overhead Costs
By establishing separate facilities for expansion, vendors are incurring unnecessary over heads
in the shape of rents and maintenance of another facility. These costs could have been easily
avoided by expanding under the same facilities.
4.1.2.4 Forgone Revenues
As vendors wait for the demand to increase to that extent where they can cover the expenses of a
separate facility, they loose out on the revenues which could have been achieved by expanding
the capacity by one or two machines.
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4.1.2.5 Lesser Benefits Of Learning Curve
Though there are certain benefits along the learning curve because of the experience of the
owners in the same industry. However, as the information sharing is not greatly facilitated
because of the physical separation between the firms, the benefits are not fully utilized.
4.1.3 Proprietary Product Differentiation

Vendors have been not been able to achieve high proprietary product differentiation because of
the following reasons:
4.1.3.1 Lesser Technological Innovations

Over the years the fan industry has been dominated by the use metals (metal sheet, aluminum
and other metals) as their components. This processes employed in manufacturing operations
amongst the vendors are much simpler and employ general-purpose machinery (e.g. lathe
machines) that do not offer much improvement in the processes. Therefore, there has been less
technological innovations amongst the vendors.
However, with increasing demand of plastic fans in the urban areas there has been also
increasing numbers of vendors providing plastic parts to the industry. However, the expertise and
machinery required to be the supplier of plastic parts is completely different from the metal parts
suppliers and thus there has been little evidence of diversification amongst the establish
suppliers. As there is considerable capital investment required for plastic molding operations, the
new vendors which are dealing in plastic parts are those who already have some roots in the
plastic industry. Furthermore, the demand plastic body fans have not yet reached that level as to
attract attention of many players. Another factor inhibiting the growth of this segment is the
development of in house plastic injection molding capabilities by the major players in the
industry (e.g. Pak Fans).
4.1.3.2 Specifications Of Products Supplied By The Buyer
Since the buyer supplies the specifications of the product, which also imparts greater bargaining
power over the supplier; there has been less initiative and flexibility on the part of supplier to
improve on the product’s specifications.
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There is low brand identity in this segment of the industry. The reasons for this are as follows:
4.1.4.1 Low Capacity Of Individual Vendors
Low capacity of individual vendors has caused higher fragmentation within this segment. The
reason of low capacity is the restricted financial resources, which also restrict their ability to
develop brand identity.
4.1.4.2 Lesser Product Differentiation
Similarly, lesser latitude in innovations in product or process lends lesser bargaining power in
the hands of vendors. This incapability of the vendors in product designing and development
limits product differentiation, which constraint them from product branding.
4.1.4.3 Willingness To Pay
Because of simplicity in the product and process, and some control over the raw material supply
by the buyers; there is lesser degree of contribution from the vendors towards ensuring quality of
the product. Thus, the quality demanded by the buyer is catered easily by market, leaving lesser
control in the hands of vendors to distinguish their product and create brand identity. The factors
on which brand identity can be maintained by the vendors in this situation is by the service and
delivery commitments. But because of greater fragmentation win the segment and low capacity
of individuals does not allow capitalizing on these factors.

Switching costs in the vendor segment of fan industry are high because of the following reasons:
4.1.5.1 Capital Requirements
Low capital requirements in the industry are attributed to the following characteristics:
4.1.5.1.1 Machinery
The machines employed in the operations are mostly cheap second hand or locally manufactured
(about Rs. 40,000 to 60,000 per lathe machine).As the operations are also on smaller scale,
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further reducing the capital requirements. Also as the technology employed in the operations has
been stable over the years, there is little threat of obsolescence.
However, the requirements for the plastic vendors are different where the investment in the
machinery is considerably higher (upto Rs. 500,000)
4.1.5.1.2 Raw Material
The general practice in the industry is that buyers provide vendors with the raw material and buy
the finished product at a pre fixed piece rate.
4.1.5.2 Access To Distribution
As there is excess capacity and choices available to buyers are greater, many of the main buyers
have long relationships with their suppliers. Though there are no formal contracts between the
vendors and buyers, most of the big buyers are tied up with their existing vendors. This reduces
new business prospects. The other factors contributing to difficulty in accessing distribution are
lesser product differentiation and failure to create brand identity.
In case of plastic parts manufactures, the scenario is slightly better as there are not many players
yet catering in this segment of the industry for the fan industry. However, the market size of
plastic fans as yet does not offer much incentive. The potential export market and growing urban
demand of the product can provide incentive for this segment.
4.1.6 Absolute Cost Advantage

The nature of equipment and processes employed in the operation provide with the absolute cost
advantage to vendors.
4.1.7 Government Policies

The current government policy as to implementation of sales tax, does contribute to obstruction
of consolidation and fully benefiting from consolidation and economies of scale as mentioned
earlier. The practice though easy to execute, a study has to be conducted in establishing whether
its losses outweigh its benefits.
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4.1.8 Expected Retaliation

Because of higher fragmentation, lower bargaining power and absence of a platform, vendors
are not able to present and defend their point of view. This further reduces their bargaining
power.
4.2 Industrial Rivalry
Industry rivalry is high in case of vendor industry. The industry rivalry is high because declining
industry growth because of recession in the fan industry and economy as a whole. The other
factors contributing to high industry rivalry are low brand identity, low product differentiation
and high degree of fragmentation. The detail of the factors contributing to the high industry
rivalry are elaborated as follows:
4.2.1 Industry Growth

The demand of the spare parts depends on the growth of the fan industry. As highlighted by the
manufacturers the growth in industry or demand of the fan depends on the following factors:
· Rural electrification plans
· Construction of house holds/offices in public as well as private segment
· Cash crops
In past few years the industry has been growing at the rate of 15%. But now with increase in
construction costs and reduced budget spending on construction of household and offices will
result in the decline of the fan industry growth. As the industry will experience lower growth the
impact will be transferred to the growth of the vendor industry.
4.2.2 Fixed Costs/Value Added

The vendor operations are labor intensive and require low capital investment. The initial
investment required for starting up average size vendor operations is between Rs. 500,000 to
100,000. The reasons for low capital investment are use of second hand local machinery by the
vendors and low investment in factory building, as the facilities are rented.
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4.2.3 Over-Capacity
Due to over optimism about the growth estimates of the industry in the early stages (1960s to
1970s), the vendor segment of the industry mushroomed. But, the demand estimates did not
materialize, hence it left vendors with excessive capacity.
As the technology employed by the vendors over the years has not undergone major changes,
therefore the natural process of weeding out did not occur. In addition to low barriers to entry,
the older players continued to operate and new entrants continued to enter in the segment.
In addition to the above mention reasons the trend of vertical integration among the large-scale
manufacturers and the closing down of the medium-scale segment has also contributed to this
over capacity situation in the vendor industry.
4.2.4 Product Differences

There is little product differentiation along the vendors of the fan industry. The reasons that can
be attributed to this includes, little technological innovation, vendors' inability to contribute in
the product design or process design; as the specifications of the product are provided by the
buyers.
The only differentiation is related to minimum customization regarding the shape of certain parts
as to the specification of the individual fan manufactures.

The products supplied by vendors are not branded. One reason for low brand identity is the
vendor’s inability of designing and product differentiation. Another reason for not branding the
product is that manufacturers fulfill their demand from a number of vendors to reduce their
dependency on one supplier and hence promoting all those as different brands is not feasible.
However because of the reliability and quality certain manufacturers have developed their firms
as the quality supplier in the industry and are known by their name. But the brand identity is low
as the brand repute is limited to the manufacturer..
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The vendors industry is currently experiencing acute capacity problems. As a consequence of
this excess capacity, changing customers is not very easy. Since the competition among vendors
for supplying parts is very intense, leaving vendors with little choice regarding customers.
The vendors also have to invest in dies specifically designed for fan manufacturers. This
investment also adds to the switching cost of the vendors, as the die change with the change in
design, which is obvious if you change the manufacturer. The cost for dies range from Rs.10,000
to Rs 20,000.
In addition to this vendors provide over 30-day credit to the fan manufacturers. This requires that
the vendor to have knowledge regarding the credibility of the manufacturers. And since they
have limited skills to analyze the payment capability of the customers, therefore they rely on
reputation and long term relations.
4.2.7 Concentration And Balances

The vendor industry is highly fragmented. The reason for high degree of fragmentation is low
barriers to entry, low capital requirement and the initial boom in the fan industry, which made
this business attractive for small entrepreneurs. Another reason for fragmentation is the low
financial resources of the players and lack of support on the manufacturers part. The trend of
vertical integration in order to gain more control has also contributed to the fragmentation of the
vendor industry.
4.2.8 Informational Complexity

The flow of information regarding the technology and processes is available to all the players.
The reason for this information flow efficiency is the contract labor, which is temporary, has
high turn over and can be switched between different vendors. The other reason attributing this
information efficiency is that all these vendors are located in the same area. Mostly the
machinery used in their processes is the general-purpose local machinery and there is an easy
access to this process technology. It is run of a mill kind of thing and no high-tech idea involved
in this business, which reduces the information complexity.
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4.2.9 Diversity Of Competitors

In the industry there are some indications of both vertical and horizontal integration by the
vendors. Some of the established vendors have endeavored into fan assembling, however, the
number of successful integration are few. Similarly, established vendors have backward
integrated into the operations like wire sizing that is used in the manufacturing of fan guards.
This has kept their focus and stakes with the fan industry. Hence, diversity of competitors is low.
4.2.10 Exit Barriers

The machinery employed in the vendor industry is mainly general purpose (Lathe machines, wire
cutting, spot welding etc.). Due to the nature of machinery the vendor can easily dispose the
machinery or utilize it to serve clients in other industries.
However, since most of the vendors have extended credit to fan manufactures. Therefore this
investment serves as hindrance for the vendors to exit the industry.
4.3 Buyers Bargaining Power
In the industry the bargaining power is in favor of buyers. The reason for higher buyer
bargaining power is that there is high number of vendors catering to the needs of highly
concentrated industry. High Buyer volumes as the proportion of the total vendor’s output and
lower buyer switching costs because of a number of choices available contributes to the higher
buyer bargaining power.
4.3.1 Concentration
The industry is dominated by the 5 fan-manufacturing firms, which represent 50% of the fans in
the country. As a consequence of this fragmentation they have little bargaining power over the
fan manufacturers. Exacerbating this power balance is the fact that five players dominate the fan
industry. Hence, suppliers/vendors, which are fragmented have to negotiate with the buyers who
are more concentrated. Buyer volume
In the industry 80 – 20 rule holds, as 30% of the buyers purchase 70% of a vendors output,
which further enhance the balance of power in favor of the buyers. the leading firms sometimes
account for the entire production of vendors. Therefore the vendors depend entirely on one
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customer for its sales. This dependence is like a double edge sword. If the vendor and buyers
have cordial relationship then the manufacturer will take the initiative to improve the capabilities
of the vendors. But in case of hands of relationship manufacturer will take little initiative to
develop vendors. However, during the survey it has been found that the advancement in
technology has been done in house by the larger firms. A case that can be sighted is the use of
computer numeric controlled machines by Pak Fans, this technology is not being extended to
vendors.
4.3.2 Switching Cost

Due to the greater number of choices of vendors available to manufacturers and their low
involvement in the development of their operations, their reliance on vendors is minimal. In the
sense that they are a number of substitute suppliers available, which will be willing to provide
them their needs, leaving them with greater latitude in their switching their vendors.
4.3.3 Buyer’s Information

The vendor industry is developed around the close vicinity of the manufacturers, hence there are
no barriers for dissemination of information between the manufacturer and vendors. . There are
no formal written long-term supply contracts, however, the average duration a vendor has been
supplying a particular industry is 8 years in case of large scale manufacturers; 5 years in case of
medium scale manufacturers and 2.5 years in case of small scale manufacturers. The detailed
information regarding their location can be acquired from the Pakistan Electric Fan Manufacturer
Association. However, the information regarding their designs and demand of different products
can be easily available from the manufacturer in case of large size manufacturers. In case of
medium and small size manufacturers the demands for the out source products are not scheduled.
They are pretty much demand driven and no formal forecasting or advance ordering is done by
the medium and lower segment of the industry.
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TABLE 6 AVERAGE NUMBER OF YEARS FOR THE VENDORS
MANUFACTURER NUMBER OF YEARS

LARGE SCALE MANUFACTURER MORE THAN 1O YRS
MEDIUM SCALE MANUFACTURER 6 YRS
SMALL SCALE MANUFACTURER LESS THAN 5 YRS
SOURCES: INDUSTRIAL SURVEY
4.3.4 Backward Integration

They just have a strategy to produce low quality, low cost product catering to the demand of the
lower segment. As they perform very subjective quality test they don’t want to enter into the
hassle of in-house manufacturing of the spare parts, which will give them control over product
quality. The reasons for not having vertical integration include: 1) Low- volumes do not justify
investment into machinery. 2) Advantage of vertical integration is reliability in terms of timely
delivery and reduced dependability. This advantage is also lost as the vendors offer timely
delivery because they have been developed in close vicinity of the manufacturers. The high
dependence is also reduced as a number of vendors are available for each part. Hence,
manufacturers can reduce their reliance on single vendor by distributing orders among a number
of suppliers. 3) The other reason that will not allow this industry to have vertical integration, is
the heavy investment in terms of working capital, which at this moment is being shared between
the suppliers and manufacturers. According to one of the manufacturers if somebody starts 100%
in house manufacturing then the investments just in working capital will be in the proximity of
10 million. It has been a practice in the industry that a large scale manufacturer introduces the
technology, however, as the knowledge of the technology grew within the industry, the
technology was transferred to the vendors. The example sighted in the industry is spot welding,
which was introduced by GFC fan for guard manufacturing and later the technology was adopted
by the vendor industry. However, this practice has been significantly reduced, as the bigger
players who have the muscle to develop vendors do not want to share their technological edge
with medium and small segment of the industry.
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4.3.5 Substitute Products

The only substitute available to buyers currently is to import the spare parts provided by the
vendors. But this option is not very feasible due to the heavy duties imposed by the government
on imported spare parts. This indispensable position commanded by the vendor will not continue
for long as the demand for plastic fans is increasing especially in the urban areas and the fan
manufactures are increasing their production of plastic fans to meet the changing demand. The
existing vendors do not posses the capability to cater for this upcoming threat posed by the
changing trends. This threat will weed out the metal spare parts vendors and replace them with
the plastic spare parts vendors. Plastic injection molding facilities already exist in Gujranwala
and Gujrat, therefore this threat will serve as an opportunity for this group.
4.3.6 Price/Total Purchases

The buyers in the industry are relatively more powerful than the vendors, hence, the prices in the
industry are controlled by them. The rates seldom vary among the suppliers of the product.
However, recognition to quality, reliability and long term relationships are considered while
negotiating prices. Since the difference in the quality gap of the products produced by the
traditional vendors (i.e. dealing in metal parts) is not wide, the opportunity to charge premium
for their products is not much. The characteristic, which is given the most importance by the
manufacturers, is the trust, which stems from long standing business relationship with a
particular vendor. When studied further one reason which came out clearly was that, the raw
material to some of the vendors is provided by the particular manufacturer (This has already
been mentioned that large and some medium manufacturers provide most of their vendors with
raw material). The raw material includes materials like hollow steel pipes for manufacturing of
stalk for pedestal, electric sheet, metal sheet or drum sheet for the manufacturing of fan blades.
Manufacturers want to sure that the material provided by them will be properly utilized and they
will get what they have invested in. the supply of raw material is also among the reasons of
lower bargaining power.
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4.3.7 Impact On Quality

Although vendor supply more than 60% (on average) of the parts to the fan manufacturers, but
the nature of the parts are such that they have little impact on the quality of the end product. Only
fan blades can be categorized as the most critical part but even here the impact is minimal
because the final shape is given at the in-house facility of the manufactures. This process
determines the performance of the fan and by bringing this process in-house the manufactures
have increased their bargaining power. But this is true only for the large manufacturers.
Also the manufacturers have in-house facilities for painting of the spare parts. This further
reduces the reliance of the manufactures, since they control the final appearance of the fan.

Fan industry can be segmented into two categories. One the large and medium-scale segment and
the second are the small-scale segment. The large and medium-scale segment is catering to the
more quality conscious consumer. While the small-scale segment assemble products, which are
low quality and low price. The leading manufacturers have invested in developing their brands of
fan through advertising and promotion, which give them edge over smaller players competing on
price. This lack of brand recognition on part of the consumer forces the manufactures to compete
on the bases of price. This pressure on prices of fan result in manufactures patronizing low cost
vendors.
4.3.9 Buyer Profit

The manufactures catering to the high end command a 20% profit margin on the average,
whereas the margins of low quality fan manufacturers is around 10%. The pressure on fan prices
has increased over the years due to the decrease in the buying power of the consumer and more
low priced fans are being introduced. As a consequence increasing the price sensitivity of the end
consumer. Low profitability of buyers has resulted in increasing their cost consciousness, which
translates into pressure on the vendor to reduce the prices of the spare parts. The reason for the
downward pressure on the buyer profit is the increasing number of brands. This increased
competition has resulted into the price wars and increased cost consciousness. It was also
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highlighted that the reduced buying power of the end consumer has resulted in the price
sensitivity of this market.
4.4 Substitution Threat
The trend toward increasing usage of plastic fans is an imminent threat to the existing vendors.
Since their production capabilities cannot cater to this changing trend of the industry. The only
way these vendors can retain their customers is to invest in new machinery for plastic injection
molding. In addition to this new machinery, vendors will have to replace existing labor with
people familiar to new processes.
Also the competition will intensify among vendors since the bigger players have the in-house
capacity for plastic injection molding, which are the major players going into the plastic fans.
The above mentioned reasons raises the switching cost for the vendors
4.4.1 Relative Price Performance Of Substitutes

Imports of spare parts from abroad is the only available substitute to fan manufactures. Although
this option is satisfactory on the dimension of performance but infeasible when evaluated on the
basis of price. This is due to the fact that heavy import duties are imposed on the import of spare
parts. The. government in it’s attempts to curb imports and facilitate the development of home
industry has reduced the available options to the fan manufactures.
Other than imported spare parts, the manufacturers can also increase the production of plastic
fans. This will be no less than a revolution for the industry since this will mean that exist
capabilities of the industry will transformed to meet the new needs. Substituting plastic for metal
are competitive on the bases of price but the performance of plastic fan will not suit our climatic
condition. Hence due to these constraint manufacturers are unable to substitute plastic for metal.

As discussed above the switching costs for the buyers are low, which gives them more
bargaining power. This is because of the demand supply gap that translates into more number of
buyers (Fan manufacturers) in the market as compared to the number of sellers (Vendors). This
demand supply gap offers a number of choices to each manufacturer for each part supplied. This
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presents a high substitution threat for the vendors. The other threat of substitution is the changing
trends towards the plastic body fans. As the present vendor industry does not have capability to
produce plastic body parts.
4.4.3 Buyers Propensity To Substitute

The manufactures of fan are under increasing pressure to introduce plastic fans because the
Chinese plastic fans are eating market share of the local manufactures. Due to the threat of being
wiped out of the market the local manufactures have responded by introducing plastic fan in the
local market. This has been able to stop the Chinese products from making inroads in the local
market.
In addition to defend local market share, introduction of plastic fans will also help in exporting.
Since the foreign customers demand plastic fans.
4.5 Conclusion
The detail analysis of the vendors of fan manufacturers has highlighted the fact that this industry
is unattractive. The important factors contributing to the unattractiveness of the vendor industry
includes: 1) high barriers to entry that are high only because of the existence of the “baradari”
circle, otherwise the factors like low economies of scale, low capital requirement and low brand
identity makes the industry unattractive. 2) high industry rivalry because of low industry growth,
lower product differentiation. 3) high threat of substitute from plastic parts. 4) higher bargaining
power of the manufacturers as a result of high buyer volumes, industry fragmentation and lower
switching cost of the buyers.
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Analysis Of Fan Industry Of Pakistan Strategic Groups In Fan Industry
5 Strategic Groups In Fan Industry
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Strategic groups comprises business units or firms that pursue similar strategies with similar
resources. This mapping is useful in better understanding the competitive environment in the
industry. A corporation’s structure and culture tend to reflect the kinds of strategies it follows ,
companies belonging to a particular strategic group within the same industry tend to be strong
rivals and more similar to each other than to competitors in other strategic groups within the
same industry.
5.1 Strategic Groups Based Upon Price And Quality
When firms in the industry are plotted against the variables price and quality, three distinct
groups emerge which are representative of the three manufacturing segments in the industry i.e.
large scale manufacturers, medium scale manufacturers and small scale manufacturers.
The quality of the fan is depicted in its power consumption, strength of wind blown and level of
noise, here consumption by wattage is used as a proxy for quality. The price of 56 inch ceiling
fan is considered to be the standard and is used here.
5.1.1 Strategic Group Comprising Large Scale Manufacturers

The large scale manufacturers by using high quality raw material (electric sheet and copper wire)
are able to reduce the wattage consumption. Furthermore, their better machining and tooling and
finishing add to the quality of the fan, for which they charge premium prices. These large scale
manufacturers collectively import electric sheet in bulk and are able to get quantity discounts.
They used to import electric copper wire but now almost all of them have developed in house
facilities for enameling copper wire. The use of ovens in drying of the wet paint is common and
the technique employed in painting also varies. The average price of 56 inch ceiling fan by this
segment is Rs. 1,800.
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5.1.2 Strategic Group Comprising Medium Scale Manufacturers

The medium scale manufacturers have been using electric sheet but due to foreign exchange
risks have discontinued the practice as they can not any longer afford the use of it in
manufacturing. The quality of machining and tooling in their product is also of lesser quality as
compared to the large scale manufacturers. The use of low grade material enables them to sell
FIGURE 6 STRATEGIC GROUPS BASED ON PRICE AND QUALITY
their fan at Rs. 200 to Rs. 300 lesser than the large scale manufacturers. The average price in this
LAHORE
HIGH PAK
ROYAL ASIA
CLIMAX GFC
QUALITY BEETA
METRO
BREEZE
GUL ALCAN FANS
LOW AFC
LOW HIGH
PRICE
segment is about Rs. 1,500.
5.1.3 Strategic Group Comprising Small Scale Manufacturers

The small scale manufacturers are merely assemblers who purchase almost 90% of their parts
from vendors. The only functions, which are done in house, are assembling and painting. The
material used are for insulation and winding are of the lowest grade which reduces the over all
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quality of the product. The finishing of the product is also done by spray painting and drying it
under sun. The average price of similar fan in this segment is Rs. 1,000.
5.1.4 Mobility Barriers

The mobility barriers across this segment are discussed below
5.1.4.1 Technological Capability
The large scale manufacturers are utilizing the better or higher grade machinery within the
industry, this includes better lathe machines, computer pneumatic control lathes automatic
presses ovens and others. The other two segments have to invest heavily in these areas before
they can be pose a challenge to large scale manufacturers. The capital investments of the large
scale manufacturers are about Rs. 200 Mio to Rs. 250 Mio. This prohibitive investments reduces
the other segment to threat large scale manufacturers.
5.1.4.2 High Brand Equity

Large scale manufacturers have invested heavily in advertising and promotion. They have been
successful in creating high brand recognition for their products. Though the middle scale
manufacturers have also tried to achieve that, but because of lack of financial resources their
efforts have not been as effective.
5.1.4.3 Financial Resources

The lower two segments in the industry lack the financial resources as to enable them with better
machines or resourcing of better grade raw material.
5.2 Strategic Groups Based Upon Product Line And Distribution

Channel
When the firms in the industry are plotted against the variables mode of distribution and product
line; three strategic groups appear. Two of these groups are using the mode of distribution which
is the common practice in the industry, whereas, the third group has diverged from the industrial
trend in an attempt to benefit from the opportunities in the market.
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5.2.1 Strategic Group Using Retailers/Dealers

The firms in this group belong to small scale manufacturers, who have restricted reach and a
more regional focus. They directly use retailers or dealers, bypassing the distributors in order to
reach the customers, as their volumes do not justify the use of distributors.
5.2.2 Strategic Group Using General Mass Distribution

The firms in this group belong to both large scale manufacturers and medium scale
manufacturers. These players are using general (mass) distribution channels, which is the
common practice of the industry. The members of this group have little control over the retailer
and don’t have control over the final prices offered by the retailers.
5.2.3 Strategic Group Using Limited Dealership And Company Owned

Outlets
The firms in this group have in an attempt to reduce the control of the trade channel over the
prices and credit tried to utilize selective dealership (Lahore Fans and Royal Fans) and company
owned outlets (Beeta Fans). They belong to both large scale and medium scale manufacturers
having medium to broad product line.
The firms in this group have diverted from the normal industrial practices. Lahore fans have
opted for limited dealership whereas Beeta Fans have opened company owned outlets and repair
centers providing three year free home service to its customers.
Beeta and Lahore Fans have tried to reduce the power of the trade channel and to improve the
service to the end customer. A similar attempt in the same direction has been made by Royal
fans, which scrutinized their distributors and set tight controls over their dealers in returning of
credit and following price policies.
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FIGURE 7 STRATEGIC GROUPS BASED ON PRODUCT LINE AND DISTRIBUTION CHANNEL
LAHORE FANS
PAK FANS ASIA FANS
BRAOD
ROYAL FANS
GFC FANS
CLIMAX FANS
PRODUCT LINE BEETA FANS
METRO FANS
BREEZE FANS
ALCAN FANS AFC FANS
NARROW ZARQA FANS
RETAILER/DEALER GENERAL (MASS) LIMITED COMPANY OWNED

DISTRIBUTORSHIP DEALERSHP OUTLETS
DISTRIBUTION CHANNEL

5.2.4.1.1 VOLUMES
The small scale manufacturers do not have that much of volumes to be able to fully utilize the
benefits of distributors. Their volumes justify the use of retailers who pick their required orders
from these manufacturers as the demand arises in the season.
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5.2.4.1.2 Managerial Capability
Only the management of certain players such as Lahore Fans, Beeta Fans and Royal Fans have
tried to take differentiate their services by using alternate trade channels. This strategy is used in
attempt to attack the industrial leaders and try to gain market share by distinguishing the product.
5.2.4.1.3 Financial resources

As we move along the use of high level of trade channels the involvement of finances increases,
small scale manufacturers do not have that much of financial resources to involve in trade.
Whereas the medium scale manufacturers and most of the large scale manufacturers cannot
invest in exclusive/limited dealerships of company owned outlets.
However, the industrial players in an attempt to reduce the bargaining power of the trade has to
vertically integrate or have more stringent working conditions with traders, by changing the
structure of the trade channel.
5.3 Strategic Groups Based On Market Penetration And Product

Line
The industry can be grouped into four groups with respect to their penetration in four identified
market i.e. rural, regional (urban and provincial), national and international. Strategic groups are
discussed below
5.3.1 Strategic Group Comprising Firms With Rural Presence

The firms in this group belong to small scale manufacturers, they offer narrow product line
mainly comprising of ceiling and pedestal fans. Their marketing operations are restricted to near
their facilities or the suburbs around them. They neither have the volumes nor the financial
resources to increase their penetration in the market. Thus they sell their product with minimum
selling expense in marketing and logistics to the villages around them.
5.3.2 Strategic Group Comprising Firms With Regional Presence

The firms in this segment belongs to both large scale and medium scale manufacturers, the
product range of this group differs depending upon to which segment the manufacturers belongs
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to. The medium players as compared to large scale manufacturers have more of regional
presence. However, they are dominated by the large scale manufacturers in their respective
regions. Large scale manufacturers have distributed amongst themselves different regions so as
to prevent price wars. The medium scale manufacturers in this segment can pool in their
FIGURE 8 STRATEGIC GROUPS BASED ON MARKET PENETRATION AND PRODUCT LINE.
PAK FANS
ROYAL FANS
BROAD LAHORE FANS
GFC FANS
ASIA FANS
ASIA FANS
BEETA FANS QAZI FANS
METRO FANS
METRO FANS
PRODUCT LINE
CLIMAX FANS BREEZE FANS QAZI FANS
ALCAN FANS
GUL FANS
NARROW AFC FANS
RURAL REGIONAL NATIONAL INTERNATIONAL
MARKET PENETRATION
resources to have more efficient operations in distributions, similarly these players can also
collectively import raw material, which can improve their quality. And can help them tap into
national and international markets.
5.3.3 Strategic Group Comprising Firms With National Presence

Only some of the large scale manufacturers in the industry has national presence. These players
have made high investments in national media promotions and advertising and have high brand
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recognition and equity. They are the quality leaders and have ventured into export markets as
well. The medium and small scale manufacturers do not have the
resources to have a national presence. Though quality of medium players is comparable to large
scale manufacturers but they lack in brand recognition through media spending.
5.3.4 Strategic Group Comprising Firms With International Presence

Within this group there are two sub groups consisting of large scale manufacturers and the of
medium scale manufacturers.
Though the large scale manufacturers dominate this segment, the medium scale manufacturers
have been able to seize some share in this lucrative market. Though they cannot compete with
larger players they feast on the left over orders. Their entrance into this market is a healthy sign
and will help them in their survival. There are also chances of collaborative efforts within these
players as to prospect international markets by sharing the expenses.
5.3.5.1 Financial Resources

Mobility barriers include availability of financial resources as to enter into higher markets. With
small scale manufacturers the entrance into national markets require investments in distribution
channel, where as entrance by the medium scale manufacturers into international markets require
prospecting for the potential markets.
5.3.5.2 Technological Capability
The technological capability of medium scale manufacturer is enough for them to enter into the
current foreign markets available to the fan industry, however, the small scale manufacturers will
require heavy investments in machining and product broadening if they want to enter into export
markets.
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Analysis Of Fan Industry Of Pakistan SWOT Analysis Of Strategic Groups
6 SWOT Analysis Of Strategic Groups
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6.1 SWOT of Large Scale Manufacturers
6.2 Manufacturing
6.2.1 Strength
6.2.1.1 Technology
The large-scale manufactures had the foresight to invest in technology. Early adoption of better
technology has helped them to build competitive advantage. As a consequence of early movers
these players have the learned how to incorporate new technologies in their operation.
6.2.1.1.1 VERTICAL INTEGRATION

Also these players have tried to reduce their reliance on vendors for critical parts like enameled
copper wire and capacitors by producing them in-house. Although producing in-house has
disadvantages in terms of time spend on coordination etc but it ensures quality, which is the key
differentiating factor for these players.

Due to the scale of their operation these players have access to better quality and low cost raw
material. The local suppliers offer discounts to the large scale manufacturers. This is practice is
prevalent since these player offer steady orders over the year. In addition, they import raw
material such as Electric Steel Sheet, which is of better quality than the local ESS.
6.2.1.1.3 Vendor Relations

The large-scale manufacturers have over the years have taken the pains to improve the
capabilities of their vendors. These players assist their vendors in the application of new
machinery. This practice of transferring technology has helped to develop better relations with
the vendors. Consequently the vendors not only supply them with better quality but also low
priced parts.
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6.2.1.1.4 Quality
The large-scale manufacturing have invested in the quality control department. This department
has developed stringent measure to ensure quality of the end product. The investment in quality
has helped these players to earn the excellent reputation in the market, which allows them to
charge premium prices for their products.
6.2.1.2 Weakness
6.2.1.2.1 High Production Cost

The large-scale manufacturers have higher cost of production. Factor attributing to these costs is
usage of imported raw material like ESS, which is far more expensive than metal and drum
sheets, which are used by other industry players.
In addition to high cost of material, these players also have higher maintenance costs. These
players have invested in machinery, which requires regular maintenance. Not only the plant and
machinery require regular maintenance but also for one month there is a complete shutdown of
the plant. During this period repair and maintenance is carried out on all the machines.
6.2.1.2.2 Flexibility
Vertical integration is a common characteristic present in all the large-scale manufacturers. This
production strategy allows more control over the quality of the production. But this control is
achieved at the expense of flexibility. Due to investments in the upstream activities the large-
scale manufacturers are at a disadvantage when the environment takes a negative turn and
demand for the fan decrease. Also this strategy is very expensive to implement since it has high
obsolescence cost. Heavy expenditure has to be incurred to keep abreast with the changing
technology.
6.2.1.3 Opportunity
6.2.1.3.1 Technology
Although the players in this segment have the most advanced technology. But compared to the
world standard the technology is quite outdated. The operations can be improved further if the
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state of the art machinery is utilized. This would help them to lower labor and material content in
their cost of production.
6.2.1.3.2 Mass Production
Currently the fans produced using job shop techniques. Since there are limited fan models and
little or no customization therefore batch production is ineffective method of producing fan. All
the international fan players have assembly line for the production of fans. By adopting mass
manufacturing techniques, local players will be able to lower the cost of production, which will
increase their competitiveness in the international arena.
6.2.1.4 Threat
6.2.1.4.1 CONSOLIDATION
Most of the strengths of firms belonging to this segment is due to their scale of production.
Therefore, consolidation of the small-scale manufacturers into a cooperative like organization is
the major threat faced by them. Such an organization will be able to combine scale from
economies of large-scale manufacturers and agility to adapt to new market condition of small-
scale manufacturers
6.2.1.4.2 Vendor Capability

The large-scale manufacturer vertically integrated in terms of in-house capabilities but they also
pursue pseudo-vertical integration by developing their vendors. The execution of this strategy
requires high capital outlay. If the current capability of the vendors improves such that there
remain no difference between the vendors. In such an environment the strength of the large-scale
manufacturers will turn into a weakness, since they will be tied with less efficient vendors.
6.2.2 Marketing
6.2.2.1 Strength
6.2.2.1.1 Broad Product Range

The large-scale manufacturers have a diverse product range. The broad categories of fans include
ceiling, bracket, exhaust, table and pedestal. None of the other players of the industry are able to
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match their product range. Lack of gaps in the product range serves as an effective defensive
strategy.
6.2.2.1.2 Innovative
Over the years the large-scale players have been first to introduce many new types of fans. This
ability to introduce new products has been successful deterrent for new entrant. In the early 90’s
the Chinese introduced plastic table fans which became very popular in the cities. The large-
scale manufactures were quick to stop the inroads being made by these Chinese fans by
introducing plastic fans under their own brand.
6.2.2.1.3 Branding
The leading players of the fan industry have been able to establish the quality image of their fans
by investing in developing brands. Branding allows them to charge premium for their products.
This has been achieved through heavy spending in advertising and promotion.
6.2.2.1.4 Distributor Network

Another strength of the large-scale manufacturers is their extensive distribution network. This
network facilitates the reach of their fan in the far-flung areas of the country. Also the
distributors of the leading players have a strong presence in the market and hence they are in the
position to push products better.
6.2.2.1.5 Exports
The major players of the fan industry are exporting about 15% of their total sales. Although
exports are not lucrative in terms of margins but the mode of payment is cash which makes this a
worthwhile proposition. Also penetration of the international markets has helped to utilize excess
capacity of the manufacturers and reduce dependence on the stagnant local markets.
6.2.2.2 Weakness
6.2.2.2.1 Lack Of Control
Distributors select by dealers and manufacturers role in the selection process is bare minimum.
Dealers are independent entities, hence manufacturers are able to exert little control over the
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activities of the dealers. This lack of control can be harmful if the dealers’ activities are
inconsistent with the image of the fan being promoted by the manufacturers.
6.2.2.2.2 Low Margin
Margin offered by the large-scale manufacturers to their distributor are by far the lowest in the
industry. Low margin can lead to discontent among the distributors and they might be enticed to
switch manufacturers by higher margins.
6.2.2.2.3 Feedback
Manufacturers rely on the distributors to provide them on information regarding changing market
trends and customer feedback regarding their products. This feedback process is not very
effective since it is very time consuming. And the follow up on the complaints is also delayed
due to lack of any direct contact with the retailers.
6.2.2.3 Opportunity
6.2.2.3.1 Electricity Prices
Pakistan is faced with the problem of ever increasing prices of electricity. Since fan produced by
the large-scale manufactures consumes less electricity therefore increasing prices electricity is an
opportunity for them.
6.2.2.3.2 Export
Although large-scale manufacturer have been exporting but as yet the penetration is limited to
Bangladesh, U.A.E., Saudi Arabia, South Africa, Iran and Iraq. They can increase their presence
in other international markets by developing relations with the trade agencies of other countries.
6.2.2.4 Threat
6.2.2.4.1 Imports
Fans from the neighboring countries like China and India pose the greatest threat to the large-
scale manufacturers. The imported fans are of comparable quality but are sold at a lower price
due to which they will be able to drive out the large-scale manufactures from the market.
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6.2.3 Finance
6.2.3.1 Strength
6.2.3.1.1 Relation With Banks
Over the years large-scale manufacturers have taken debt from the banks to provide for their
working capital requirement and letter of credit. The prompt payments by the players have led to
development of cordial relationship with the banks. This relationship can assist them in
negotiating lower interest rates on their loans.
6.2.3.1.2 Management Control System

The large-scale manufacturers have developed systems to track costs of manufacturing. The cost
data cannot be tracked to individual model of the fans. But this system allows them to understand
the expenses incurred which leads to efforts by the manufacturers to cost control.
6.2.3.2 Weakness
6.2.3.2.1 Sub-Optimal Capital Structure

The industry players are hesitant to take on debt. They prefer to use equity for expansion of the
business. This aversion to use of debt is contrary to optimal capital theory, which endorses
combination of debt and equity to fulfill financial needs of the company. As a consequence of
excessive use of equity their the cost of capital is very high.
6.2.3.2.2 Rudimentary Tools

The large-scale manufacturers practice rudimentary financial evaluation tools. Lack of
sophisticated financial practices can lead to wrong decision while evaluating new proposals.
6.2.3.3 Opportunity
6.2.3.3.1 Capital Market
The growth of the large-scale manufacturers is constraint by limited resources. These players
have limited know how to access the capital markets. If they are able to understand the financial
intricacies than they will be able to tap the capital markets to finance their growth.
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6.2.3.4 Threat
6.2.3.4.1 Stringent Credit Policies
Currently the banks have lax credit policy while lending to large-scale manufacturers. Therefore
these players have been able to obtain credit without any formal financial documentation. If the
policies become more stringent then it will become difficult to secure loans.
6.2.4 Human Resource

6.2.4.1 Strength
6.2.4.1.1 Skilled Management
It is difficult for the fan manufacturers to solicit applicants to work in Gujrat/Gujranwala. But
large-scale manufacturers have been overcome this difficulty by offering competitive
compensation. Currently there are few qualified people in middle management level. Skilled
management gives them edge over the rest of the industry, as the others do not have resources to
offer competitive package and attract the professional managers.
6.2.4.1.2 Labor Relationship

The management of the large-scale manufacturers has long term relationship with the labor
contractors. Strong ties with the labor contractor not only allow these players to access to more
skilled labor and also help to foster cordial relation
6.2.4.2 Weakness
6.2.4.2.1 Decision Making

These are the family owned businesses with the top management comprised of family members.
The family members make most of the decisions without consulting the managers. Due to lack of
professional input the decision making process is not very effective.
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6.2.4.3 Opportunity
6.2.4.3.1 Consolidate
The large-scale manufactures are using imported machinery and have to invest in initial training
of the labor. Now if they consolidate their resources for training and development, this will
reduce the cost of training for each player.
6.2.4.3.2 International Presence
In order to boost their exports they need to develop offices in the markets where they are
exporting. This will give them feedback about the market needs and customization of the product
to these markets.
6.2.4.4 Threat
6.2.4.4.1 Training Institution
Currently the large-scale manufacturers have skills to operate latest technology. With the
development of training institute the skill level of the labor will improve as for whole industry.
This will eliminate their competitive advantage.
6.3 SWOT Of Medium Scale Manufacturers
6.3.1 Manufacturing
6.3.1.1 Strength
6.3.1.1.1 Indigenous Machinery

Machinery utilized at the medium-scale facilities has been developed indigenously. Local
machinery is less expensive compared to imported machinery. Also in case of machine
breakdown technical assistance and spare parts for repairs are easily available.

These players purchase raw material from the local suppliers. Although the quality of the local
raw material is inferior as compared to imported raw material. But local sourcing of raw material
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allows the small-scale manufacturers to reduce the inventory level since the lead times are
shorter.
6.3.1.2 Weakness
The medium-scale manufactures have invested in general purpose, labor intensive machinery.
Usage of such a technology causes production inefficiencies. Also the rejection rate increase due
to higher labor involvement in the production.
6.3.1.2.2 Vertical Integration
Although this segment is relatively less vertically integrated than the large-scale manufacturers.
Presently, they are out sourcing only 30% of the parts from the vendors. This production strategy
allows them greater control on the quality of the end product but as the volumes do not justify
backward integration therefore their cost of production increases.
6.3.1.3 Opportunity

The medium-scale manufacturer have backward integrated since the quality of spare parts
provided by the vendors is not of the desired quality. Improvement in the capability of the
vendors in terms of the quality of their products will be an opportunity for the small-scale
vendors to divest from the downstream activities.
6.3.1.4 Threat
6.3.1.4.1 Consolidation
Most of the strengths of firms belonging to this segment is due to their scale of production.
Therefore, consolidation of the small-scale manufacturers into a cooperative like organization is
the major threat faced by them. Such an organization will be able to combine scale from
economies of large-scale manufacturers and agility to adapt to new market condition of small-
scale manufacturers.
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Medium-scale manufacturers out source parts from the vendors developed by the large-scale
manufacturers. This preference is due to better quality of supplies from these vendors. If the
leading players limit the access to these vendors then the medium-scale vendors will be faced
with problem of finding quality vendors.
6.3.2 Marketing
6.3.2.1 Strength
6.3.2.1.1 Regional Focus

The medium-scale segment has a narrow geographical focus. The players in Gujaranwala and
Gujrat are supplying fans just to Punjab and some parts of N.W.F.P. This is optimal utilization of
their limited resources, which if divided across national markets will dilute the effect.
6.3.2.2 Weakness
6.3.2.2.1 Product
The players in the medium-scale segment of the industry have middle of the road kind of
strategy. They are neither the low cost nor the high quality producers. This lack of focus makes
them susceptible to open competition from both large and small-scale segment.
6.3.2.2.2 Innovation
The medium-scale manufacturers have not taken the initiative of introducing new products. Due
to this complaisance they were unable to maintain there product differentiation, which were
copied by the small-scale manufacturers. In addition to this they were also unable to carve new
market niche.
6.3.2.3 Opportunity
6.3.2.3.1 Exports
Only small numbers of medium-scale manufacturers are currently exporting fans and also the
volumes exported are under private brands. In future the development of export markets will
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give them opportunity to export their products and use the excess installed capacity. This will
reduce their dependence on the local market, which is currently under slum. Moreover their low-
cost will give them advantage over the large-scale manufacturers in export market.
6.3.2.4 Threat
6.3.2.4.1 Competition
Recently two of the large-scale manufacturers have moved into low cost, low quality products. If
this trend continues then the small-scale manufacturers will be facing intense competition in their
market. In this competition they will be at weaker position compare to the large manufacturers
because of their deep pockets.
6.3.2.4.2 Forward Integration

Currently there was only one example found regarding the integration of the manufacturers into
up stream activities like distribution. If in future there is a trend to move into distribution then
their financial resources will not allow them to follow this trend. This will reduce their price
advantage.
6.3.3 Finance
6.3.3.1 Strength
6.3.3.1.1 Relation With Bank
These players have had long-standing relation with the local banks. Most of the credit extended
to medium-scale manufacturers was for the purpose of financing working capital. Regular
payments of the loans have further developed the relationship with the banks. This assists them
in negotiating better terms for loan facility.
6.3.3.2 Weakness
6.3.3.2.1 Financial Practices

Lack of sophisticated financial practices is one of the weaknesses of the small-scale
manufacturers. Since they are unable to objectively evaluate any investment proposal. Also they
are unable to effectively manage working capital i.e. receivables and payables.
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6.3.3.2.2 Management Control Systems

The medium-scale manufacturers have not established any management control system. As a
consequence of they have only rough estimation regarding the cost of production. Lack of
precise cost data leads to difficulty in determining profitability of the various models. Also, these
players are unable to price their products, which render them un-competitive in the market.
6.3.3.3 Opportunity
6.3.3.3.1 Subsidized Loan
The medium-scale fan manufacturers will benefit if the government extends subsidized loans in
order to develop this industry. These low cost loans will assist the firms to streamline operations.
6.3.3.4 Threat
6.3.3.4.1 Stringent Credit Policy

Currently, these players have been able to obtain loans due to their cordial relation with the
banks. If the banks become more stringent regarding credit disbursement than medium-scale
manufacturers will find it difficult to obtain loans.

6.3.4.1 Strengths
6.3.4.1.1 Labor Relationship
Over the period the manufacturers have developed close relationship with the labor. This close
relationship helped them improve their bargaining power with the labor contractors during
contract negotiation.
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6.3.4.2 Weaknesses
6.3.4.2.1 Low Wages
The wage rate offered by the medium-scale manufacturers is lower than the large-scale
manufacturers. This causes difficulty in attracting skilled labor. Also it causes high turnover of
skilled labor.
6.3.4.2.2 Skilled Management
It is difficult for the fan industry to request applicants to work in Gujrat/Gujaranwala. However,
the large players to some extent solve this problem by offering attractive compensation package.
But the inadequacy of the medium segment has restricted them from gaining management
proficiency.
6.3.4.2.3 Lack Of Supervision
The medium-scale segments have no middle management. They are completely controlled by an
individual. This causes lack of supervision and ineffective decision making.
6.3.4.3 Opportunities
6.3.4.3.1 Training Institute

There is an extensive need for a training institute for the fan industry. The present institute has
very old technology and very basic kind of training is provided. If in future the government build
a training institute for the fan industry, it will increase the supply of skilled labor. This will
improve the skill level of the medium-scale segment.
6.3.4.4 Threats
6.3.4.4.1 Shifting Of Technical Labor Employed On Contract
If the industry does not remain lucrative enough for the labor force, these medium players will
have difficulty in hiring people in contract. It can happen if the cities in which they are located
become hub of other lucrative industries.
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6.4 SWOT Small-Scale Manufacturer
6.4.1 Manufacturing
6.4.1.1 Strength
6.4.1.1.1 Low-Cost
The small-scale manufacturers are catering to the low quality, low-cost segment of the market.
Their operations are labor intensive and because of cheap their cost of production is low.
Another reason for low cost of production is the purchase of local raw material. Because of
limited operations and availability of rental facilities their fixed manufacturing overheads are
also low, which further reduces their production costs.
6.4.1.1.2 Flexibility
The firms in the small-scale segment of the industry are basically the assembly units. The major
portions of their operations are out source. This high degree of outsourcing gives them greater
volume flexibility. As they are just the assemblers they can quickly respond to the changing
demands of different type of products.
6.4.1.1.3 Lead Time
The small-scale manufacturers use local raw material, which reduces the lead-time for raw
material purchase. This reduces their response time to the changing demands. As the lead times
are low they do not have to have high inventory levels, which reduces their inventory holding
costs.
6.4.1.1.4 Capital Outlay
The manufacturing operations of the small-scale manufacturers are not capital intensive. They
are using locally manufactured machinery, which reduces the initial capital investment required
to set up a production facility. This also helps in reducing the fixed costs. The purchase of local
machinery also reduces the maintenance costs for them, as the spare parts and technical
assistance is locally available.
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6.4.1.2 Weakness
6.4.1.2.1 Quality
The reliance of the small-scale segment on local raw material and greater outsourcing is
hampering their quality. They do not have any quality control department. Because of not having
stringent quality measures they do not have any product consistency. This is restricting their
entrance into the urban market as consumer her is more literate and quality conscious.
6.4.1.2.2 Dependence
Nearly 70%-80% of their cost of production is the purchases from the suppliers. This high degree
of outsourcing increases their reliance on the vendors. This also increases the need of
coordination and planning between the two.
6.4.1.2.3 Economies Of Scale
The small-scale manufacturers have low volumes. Because of these low volumes they can not
have bulk purchase discounts in purchase of raw material and spare parts purchase from local
vendors. This also ceases the opportunity of further lowering of manufacturing costs.
They have not invested in technology and because of this they have lower production efficiencies
and quality is more prone to the human error. This also reduces control over quality.
6.4.1.3 Opportunity
6.4.1.3.1 Consolidation
Currently they have low volumes and no economies of scale. If in future they consolidate their
operations with other small players, this will help them get higher volumes and get higher
savings through bulk purchases and longer production runs. The consolidation will also justify
higher capital outlay in latest technology.

If the current capability of vendors is improved then the large-scale manufacturers will loose
their competitive advantage of backward integration. This will strengthen the position of the
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small-scale manufacturers and they will be able to match the higher quality of large-scale
manufacturers at comparatively lower cost.
6.4.1.3.3 Mass Production
Currently the manufacturers are using job shop production techniques. If they switch to mass
production as followed by the international players then it will lower their cost of production and
make them more competitive in local market.
6.4.1.4 Threat
The large-scale manufacturers have invested time and money in developing the technical
competence of the vendors. This has helped them develop long-term relationship with the
vendors. Now based on these close ties with vendors they might be able to limit the access to
quality suppliers for the small-scale manufacturers. This will create the problem for the players
in this segment, which are highly dependent on the vendor’s products.
6.4.2 Marketing
6.4.2.1 Strength
6.4.2.1.1 Higher Margins

The small-scale manufacturers are presently offering higher margins as compared to the large
and medium-scale segment. The reason for these high margins is the push strategy followed by
this segment.
6.4.2.1.2 Rural Markets

The rural market in Pakistan is more prices sensitive and the quality consciousness in this market
is also low. Currently the existence of this market is the strength for the small-scale segment.
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6.4.2.2 Weakness
6.4.2.2.1 Reach
The small-scale segment does not have extensive distribution network, which limits their reach.
This in turn has effect on the sales of the product. Their market is in far-flung rural areas, which
further increases the need of having formal distribution channel.
6.4.2.3 Brand Awareness
They are not spending on advertising because of which they have low brand awareness with the
customer. They are following the push strategy, which requires high promotional budget,
targeted to the trade channel. Hence they are in a weaker position because of their low
promotional budget.
6.4.2.3.1 Product Range
The small-scale manufacturers have narrow product focus. Product innovation is low. Over the
period they have not been able to introduced new models and sizes. These limited product
offerings have constrained their growth. The market is shifting towards plastic molding fans and
their inability to respond to this changing need of the market will negatively effect their sales and
future existence.
6.4.2.4 Opportunity
6.4.2.4.1 Exports
If in future the large-scale manufacturers become successful in the international markets then this
will shift their focus to the exports and the local market will be available to the small-scale
segment and the demand for their products can increase.
6.4.2.4.2 Buying Power

The high price sensitivity of the consumer is because of the lower buying power. If the buying
power of the consumer further decreases or the market size of this segment increases, this will
have a positive impact on their sales.
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6.4.2.5 Threat
6.4.2.5.1 Quality Awareness
As the consumer segment becomes more aware of quality and if the large-scale segment is
successful in projecting the cost savings because of using high quality, low wattage fans. This
will cause a shift of consumer to high quality fans with lower running cost and higher electricity
saving.
6.4.2.5.1.1 Innovative Products
If these new fan models like plastic body and remote control fans become popular then the
segment for the metal body and high wattage fans will diminish. This will be a threat for the
small-scale manufacturers, as this will replace their niche.
6.4.2.5.1.2 Energy Prices
In the past the energy prices have increased. If the trend continues in the future then the demand
for the high wattage fans produced by the small-scale vendors will further decline and the low
power fans produced by the large-scale manufacturers will capture their market share.
6.4.3 Finance
6.4.3.1 Strengths
6.4.3.1.1 Low Stakes
The small-scale manufacturers have low capital investment in plant and machinery. This reduces
the barriers to exit for them. Except for locked in working capital they have low financial stakes
and can respond quickly to the recession without loosing much money.
6.4.3.2 Weaknesses
6.4.3.2.1 Access To Banks
The small-scale manufacturers have no financial department. The absence of the financial
function and proper documentation of the financial reports has weakened their bargaining
position with the banks. This has limited their access to the banks and has placed financial
constraints on the small-scale manufacturers.
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6.4.3.2.2 Management Control Systems
The small-scale manufacturers have no control systems. Despite of their limited product range
they are unable to track down the expenses to the specific products. This makes the product
pricing difficult and wrong pricing directly effects their profitability.
6.4.3.2.3 Financial Practices

The small-scale manufacturers are not using any financial evaluation tools. This low financial
understanding have restricted their ability of introducing new technology and models. They are
basically followers relying on the successful experience of the large-scale manufacturers. Hence
they are always the late entrants in the markets.
6.4.3.3 Opportunities
6.4.3.3.1 Government Support
In future government has plans to boost the small and medium enterprises. As a result of the
steps taken the small-scale segment will get subsidized loans, which will help them in
developing their technological capabilities and solve the problem due to scarce financial
resources.
6.4.3.4 Threats
6.4.3.4.1 Tax Structure

Presently the small-scale segment is operating in fixed tax bracket and the filing of tax return is
simple. In future if the tax structure is changed then and they come under open tax bracket then
the absence of financial and accounting skills will make them rely on the mercy of tax
department, and they will not be able to properly file their tax returns.
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6.4.4.1 Strength
6.4.4.1.1 Temporary Labor
In small-scale segment all the labor is temporary and there are no long-term contracts with the
labor contractors. This helps them to keep their fixed costs low, which is exactly in line with
their current strategy of cost leadership.
6.4.4.2 Weakness
6.4.4.2.1 Skill Level
The skill level of the labor in small-scale segment is low. The reason for this low skill level is the
lower wage rate offered by the manufacturers in this segment. This low skill level results into
low production efficiency and low product quality.
6.4.4.2.2 Weak Management

The small-scale manufacturers have low profitability and hence are unable to pay competitive
salaries to the management staff. Because of their financial constraints they are not able to attract
professional managers. Hence lack management skills.
6.4.4.3 Opportunity
6.4.4.3.1 Training Institute

Currently there is no training institute catering to the needs of fan industry. In future if a training
institute is established, it will improve the technical skills of the labor. This will help the small-
scale manufacturers to have
6.4.4.4 Threats
Lack of trained employee contribute to the inferior quality of the final product. Though the
quality of the product can be improved by imparting minimum training to these employees. If the
overall lucrativeness of the industry decreases these manufacturers will face difficulty in hiring
and retaining good workers. They might loose this good mechanist to other industries or firms.
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Analysis of Fan Industry of Pakistan Value Chain Analysis Of Fan Industry
7 Value Chain Analysis Of Fan Industry
7-99
FIGURE 9 VALUE CHAIN ANALYSIS OF LARGE SCALE MANUFACTURERS
MANAGERIAL INFRASTRUCTURE
1.Competent, educated and experienced management.
2. Centralized decision making
3. Cordial relationship with labor
4. Lean structure.
HUMAN RESOURCE MANAGEMENT

1. Most experienced and best-trained workforce.
2. Good on job training and development environment.
3. Job security highest in the industry.
4. Best compensation, fringe benefits and reward systems in the industry.
TECHNOLOGICAL DEVELOPMENT
Technology leaders in the market Little expenditure on in house R &D. Designs mostly imitated.
MARGINS
PROCUREMENT
1. 90% of the operations are done in house.
2. High volumes enable them to have quantity discounts.
INBOUND MANUFACTUR OUT BOUND MARKETING SERVICE

LOGISTICS ING LOGISTICS AND SALES Offer life time
Sufficient Use of better Sufficient Better credit guarantees.
material storing machinery. storing/warehousi collection Provide the members
facilities. These Stress on material ng capacity for systems, of the trade with
warehouses saving and the finished good. highlighting the spare parts.
enable them to quality products. Detailed order bad trade debts.
purchase in bulk processing and Heavy spending
and get quantity scheduling on
discounts. systems advertisement
and consumer
promotion,
creating pull for
their products.
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FIGURE 10 VALUE CHAIN ANALYSIS OF MEDIUM SCALE MANUFACTURERS
1.Competent, educated and experienced management.
2. Low autonomy.
3. Lean structure.

1. Better workforce long standing relations with contractors.
2. On job training and development.
3. 60% - 70% contractual labor.
Negligible R&D copy the models introduced by the large scale manufacturers..
PROCUREMENT
1. 30% - 40% operations vertically integrated.
MARGINS
2. High volume purchases of raw material enables them to get better rates.
3 Close relationships with vendors
LOGISTICS ING LOGISTICS AND SALES. Spare parts provided
No large storing Use of better Producing to Marketing and to the distribution
facilities as local demand levels as advertisements channel.
material are not manufactured storing facilities of the product is
procured in machines to give are not as big as done through
bulk. minimum quality large scale less expensive
and finish to the manufacturers media. Minimal
product. and not much spending of
cash available to electronic
be stuck in media
finished goods
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FIGURE 11 VALUE CHAIN ANALYSIS OF SMALL SCALE MANUFACTURERS
1. One to two person management team.
2. Experienced in the related business.

1. 100% contractual labor.
No R&D expenses.
MARGINS
PROCUREMENT
100% of the operations outsourced.
Procurement is done when demand arises.

LOGISTICS ING LOGISTICS AND SALES No support services
No storage Only winding and Mode of Minimum provided to the
facilities painting is done transportation is marketing and distribution channel.
required as in house. outsourced. sales
purchases are No specialized No warehouse expenditure.
done when machinery facilities. Advertisement
demand arises. required efforts are
concentrated on
small banners
and boards
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7.1 Primary Activities
7.1.1 In Bound Logistics

7.1.1.1 RECEIVING
In order to have quantity discounts by having bulk purchases the large-scale manufacturers
place consolidated order for the imported Raw material. When the raw material reaches the
port then one of them contact with the custom and port authorities for the clearance of the
shipment. After getting the clearance the clearing agent arranges for the transportation and
delivery to the manufacturer’s factory. The manufacturers share the transportation and
clearance costs. After receiving the shipment at the factory the quality control department
along with the store personnel check the quality and quantity of the material supplied and
then book it in the inventory register. The shipment is by sea and can take about a month or
two. In case of purchases from the local spare parts vendors the transportation is the
responsibility of the supplier. As all the vendor industry is located close to the industry the
transportation costs are low. Small vans or donkey carts are used for transportation. The
reason for daily delivery is that the vendors do not have proper warehouse facility and the
unpainted parts are vulnerable to corrosion, which effect the finish and quality of the parts.
However the medium and small-scale manufacturers buy Mild Steel Sheet or drum Sheet
from local importers. In this case the transportation to the factory gate is borne by the
importer. They do not purchase large orders as they have limited free cash and do not have
storage facility to store the large rolls of sheet. Other difference is that they do not perform
quality checks on the material supplied. In case of local vendors they rely on the name and
long term relation ship with the supplier.
7.1.1.2 Warehousing/Inventory Control
The large-scale manufacturers do have adequate storage facilities. The raw material like
Electric Steel Sheets (ESS) is stored in the open yard. However, for the material supplied
by the local vendors they have covered stores. The large scale and some members of the
medium scale manufacturers have divided the stores according to the size and type of the
material. This makes the inventory record keeping easy and also is the requirement of ISO
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9000, for which these players are going. This also saves the time of material handler when
the requirement for specific part type is made. The medium scale and small-scale
manufacturers do have limited storage capacity but the record keeping is very informal,
which results in pilferage.
7.1.1.3 Vehicle Scheduling
The clearance agent schedules the delivery of imported raw material from Karachi port to
the large-scale manufacturers after the custom clearance. The exporter of the material also
informs the tentative arrival of the shipment through fax, so that the receiving party can
make desired arrangements.
In case of medium and small scale manufacturers the delivery to the factory is scheduled
by the supplier and the dates are conveyed to the purchase personnel through telephone
call.
7.1.1.4 Returns To Suppliers
In the fan industry, the large-scale manufacturers are very conscious of quality. This is due
to the fact that they have invested heavily in building the image of their respective brands
and quality inputs ensure that they maintain their hard-earned repute. The quality control
department samples all the inputs. In case of imported raw material, the sample results are
compared with the specification reports sent with the shipment. If there is any divergence
between the sample results and specification than the manufacturers return the shipment.
To date the manufacturers did not have to return shipments to the exporters. Similar
process of quality checks is performed on local inputs. The sample is compared against
company standards of weight, thickness and finish. Shipments are returned if they fail to
meet these standards. But due to stringent selection of the suppliers, returns are not
common.
The medium scale manufacturers have similar process to determine if the shipment has to
be returned. But they lack quality control department and follow less sophisticated
procedures to determine the quality of the inputs.
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Due to the lack of quality consciousness on the part of the small-scale manufacturers, they
do not perform quality control check on the raw material. Returns to the suppliers are
unheard of in this segment.
7.1.2 Operations
The level of labor or capital involvement in the operations varies among the different
segments of the fan industry. In case of the large-scale manufacturers the production
operations are more capital intensive as compared to the medium scale manufacturers. It is
the case with the skill level and compensation for the workers in the fan industry. Large-
scale manufacturers have heavy investment in machinery, which not only increases the
production efficiency but also gives a considerable amount of material saving. The
production stages involved in the production of ceiling fans and the machinery required to
perform the function are as follows:
7.1.2.1 Production Stages For Ceiling Fan

The reason for studying the production stages of the ceiling fan is that about 60% of the
installed capacity of the manufacturer are dedicated to the ceiling fan production.
7.1.2.1.1 Sheet Cutting

The raw material involved in this process is Electric Steel Sheet or Mild Steel Sheet or
Drum Sheet. The material used in this process also varies across the three segments of the
industry. The large scale manufacturers use imported Electric Steel Sheet. The medium
scale manufacturers are using Mild Steel Sheet and the whole of the small-scale
manufacturers is using Drum Sheet. The reason that different manufacturers are using
different types of sheet for the manufacturing of Rotor and stator armature is the high price
differential among the three different types of steel sheets. Among the three different types
of sheets the, Electric Steel sheet is the most costly then comes Metal Sheet. The Drum
Sheet is the cheapest of the three types. The use of Electric Steel Sheet has a positive effect
on the power consumption of the fan. But the small and medium scale manufacturers are
not pushed to use this high quality steel sheet as their target customers are not literate
enough to realize the one time high price of the fan as compared to high running
expenditure.
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In this section, the laminated Electric Steel Sheets (ESS) or any other type for rotor and
stator armature (in which copper wire is wound) are cut to sizes in circular form. They are
perforated to accommodate the windings in them and are aligned and riveted together to
the required thickness.
7.1.2.1.1.1 Machines Involved
The machines involved for this process also vary across the three segments. The large-
scale manufacturers are using Automatic Hydraulic Press (Imported) as well as shearing
machines, power press and cutting dies, which are local machines. The Automatic
Hydraulic Press gives high production efficiency as well as savings in material and labor
costs. The reason for not using this press is the lower production volumes of the medium
and small-scale manufacturers, which do not justify the high capital outlay of the
Automatic Hydraulic Press.
7.1.2.1.2 Rotor Casting Or Filling

The rotor is then taken to the rotor casting section where it is filled with molten aluminum
metal to form squirrel cage winding. The interaction of the rotor (aluminum) winding and
stator copper winding causes rotation of fan).
Furnace, hydraulic presses and dies. All of these are locally manufactured machines.
7.1.2.1.3 Rotor Roughing

This is also called machining. After rotor casting, the external diameter and upper edges of
the rings of the rotor are finished on a lathe machine to make it fit easily in the grooves of
the fan body. This gives the finish to the part.
Local lathe is being used for this process. The number of machines used for this process
depends upon the production capacity of the manufacturer. Some large-scale
manufacturers are using automatic lathe for this process, which gives high degree of
precision.
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7.1.2.1.4 Stator Turning
In the ceiling fan the part bearing the copper winding is known as the stator. Commonly
called armature. The rotor bearing the squirrel winding rotates around the stator. In case of
pedestal fan, the rotor having the squirrel winding rotates inside (as opposed to outside in
case of ceiling fan) the stator, bearing copper windings. A pre-sized fabricated iron axle is
pushed into the center of the stator. Both sides of axle are ground to fit bearings.
Hydraulic power press, grinding machines. Both local and imported machines are used for
this process.
7.1.2.2 Winding Section
Winding can be done on automatic machines or manually. The large-scale manufacturers

use automatic winding machines, where as small and some of the medium scale
manufacturers are using manual winding processes for rotor/stator winding. The use of
automatic machines give high speed as well as more precession. It is estimated that the
annual production level of sixty thousand units justifies the use of automatic winding
machines.
7.1.2.2.1 Machines Involved

Imported automatic winding machines, oven, and local winding machines.
7.1.2.3 Lathe Or Turning Section

First the rotor is pushed into the groove of pre-casted aluminum body. Then on the
“Capstan Lathe” the bearing sizes are made in the body (lower) and the plate (upper). The
machining process is performed on the inside of the rotor to clean it. After this process, the
body and the plates go to the other machines for external turning and finishing (turning is
first step in finishing and involves using turning tools on a lathe; finishing is done with file
and emery cloth
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Hydraulic Press to push the rotor inside the body, capstan lathe machine, and common
lathe machine. Capstan lathe is a special lathe, which performs a number of functions
simultaneously. It has a head, which can take a number of tools to perform different
functions simultaneously. By turning the lever various functions can be performed. For
example internal boring, external boring, bearing size making, internal cleaning of rotor
and seat for upper plate fitting.
7.1.2.4 Drilling And Tapping Section
After the completion of drilling and machining process the body and the plate is brought to
this section. Here different sizes of holes and threads are made for the fitting body and
plate, blades and other parts.

The machines involved in this process are drilling and tapping machines. These machines
are locally manufactured.
7.1.2.5 Fitting And Assembling
The finished body, plate, stator, connection box (nakka), in which capacitor is housed and
other components are brought in this section. Here they are properly washed with petrol,
flushed with air blow and cleaned to remove the metal chips, oil and dust, which stick to
the parts during different processes.
The only machine involved here is the hand press, which is locally manufactured machine.
The other functions in this section are performed manually.
7.1.2.6 Painting
The fan body, blades and ceiling rods are first washed with petrol to remove oil stains and
grease and flushed with air blow to remove dust. Two coatings are done using wet spray.
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Body, blades and ceiling rods are then baked in the furnace. Baking temperature are
controlled so as to protect internal winding and bearing grease from heat.
Air compressor, spray guns and furnaces are used for this process. The finishing of the fan
very much depends on the painting process. The log life of the paint depends on the quality
of the paint as well as baking process. The small-scale manufacturers are not using baking
furnace.
7.1.2.7 Final Testing And Packaging
After painting the fan goes for final testing and packaging. The blades are weighed and the
difference is adjusted so as to have balance. The differential is because of the uneven
application of spray paint, which can effect the uniform thickness of the blades. This
weight difference or unbalance causes vibrations while running. Blades and grease cups
are then attached again. The fan is then hooked again and is supplied with power for
checking power consumption, current, r.p.m, and air delivery, noise (this can be because of
blade bends). Blade bends are then manually adjusted to improve air delivery and reduce
noise. Variation of speed at different voltages is also checked. After testing, the blades are
detached, capacitor and power connectors installed, and name [plates are fitted. Fan is then
packed for storing and marketing.

Testing equipment involved is local as well as foreign manufactured.
7.1.2.8 Blade Making
All the large, medium and small-scale manufacturers are purchasing required sizes of the
fan blades from spare parts vendors. The two different types of blades available are
aluminum blades and recycled aluminum blades. Blades made with recycled aluminum are
heavy for same thickness levels because of high level of impurities that increases the
density of the finished product. The use of the recycled aluminum raises the price of the
blades as manufacturers pay by weight of the blade. The difference can be some where
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between Rs 30 to Rs 35 per set. The set has three blades in case of ceiling fan and five in
case of pedestal fans. The large-scale manufacturers give the bend themselves.
Machines involved in this process are local power press, and drilling machines.
7.1.2.9 Quality Checks

In order to have a high quality output the quality checks are performed during the process
flow after the specific job is completed. Finally the checks are performed before painting is
done. The standards followed here are the Pakistan Standards of Industry (PSI). These
standards have been revised in order to facilitate exports after 1996.
7.1.2.9.1 High Voltage Test

It is also called as high pot test. It is done to check the insulation of the winding at high
voltage. The voltage level is a 1500 volts. The insulation material used is paper leathered
between the coils. The two tests performed here are as follows:
· Coil to coil
· Coil to body
The equipment used is high voltage transformer. Rejection rate is very low for large-scale
segment less than 1% as automatic winding machine and high quality insulation material is
used. In case of table fans the rejection rate is little higher as the winding process is
manual. The rejections are sent for rework if it is possible.
7.1.2.9.2 Final Quality Checks
After assembling and before painting is done, a detailed quality checks are performed. The
whole day production lot is checked. The tests performed include the following:
7.1.2.9.3 Power Consumption test

The power consumption standards are different for different sizes of fans. In case of 56
inch ceiling fans the value is 80 watts, with 10% tolerance level. The rejection rate not very
high. It is between 2% to 3%. The reasons for higher power consumption are as follows:
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· Bearing friction
· Axle alignment
· Bushing
· Loose or number of winding turns
7.1.2.9.4 Current
The amount of current drawn at different voltage levels and speeds is also checked it is the
part of the power consumption test. An ampere meter is used to check the current. The
readings are noted against different speed levels.
7.1.2.9.5 Revolutions Per Minute Checked

The test is performed for horizontal types. The standard for Revolutions per minute is 1475
r.p.m. This test is performed before painting with standard blade set. The fan is run for 6 to
8 hours at full speed before the quality control engineer clears the lot.
7.1.2.9.6 Air Delivery

There is separate room to perform this check the sample of five fans are passed through
this test from the whole day production lot and the results are entered on a quality check
report given in Appendix.
7.1.2.9.7 Staff
The quality control department has a staff level of ten employees. They are full time
salaried staff. The break down by there responsibility is given in
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Table 7.
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TABLE 7 QUALITY CONTROL DEPARTMENT
Number of Responsibility Qualification

employees
Four To perform the test on Ceiling One engineer (QCE) and the rest are
Fans diploma holders called as quality
inspector
Two To perform the checks on the Two diploma holders called as
Pedestal Fans quality inspector
One To check the quality of the One diploma holder called as quality
Bracket Fans inspector
One To check the quality of the One diploma holder called as quality
Exhaust Fans inspector
7.1.3 Outbound Logistics

7.1.3.1 Warehousing
The large-scale manufacturers' production is schedule such that they produce the entire
year. The advantage of level production is that they save on hiring and training of labor
each year. But as a consequence of their production strategy they have inventory in the off-
season. In order to store this inventory, the leading players have invested in the warehouse
facilities. The storage capacity of the warehouse is sufficient for over two weeks of
production.
The medium and small-scale manufacturers' production are scheduled after receiving
order. Therefore they have no inventory hence there is no need for a warehouse. Despite
the medium scale manufacturers have small warehouse with the storage capacity of two
days production.
7.1.3.2 Delivery
Fan manufacturers have not invested in trucks or vans for the delivery of fans from the
factory to the distributors’ warehouse. This is due to the fact that the network of
distributors is extended to far-flung areas. The demand of some of the smaller cities and
towns do not justify company owned trucks. Therefore, manufacturers have arrangements
with the local transport companies for the delivery. This is a more cost-effective method to
ensure delivery to even the remotest corners of the country. The manufacturers pay the
freight and octori.
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Exports are delivered via sea, the leading manufacturers arrange for containers, which
transport the goods to the Karachi port.
7.1.3.3 Order Processing
The dealer/retailers place orders with the distributors, who in turn forward the orders to the
manufacturers. In case of exports of fans, foreign distributors contact the manufacturers,
open letter of credit and place order. Order processing is similar at the large and medium
scale manufacturers, they only differ in the degree of paperwork. The marketing/sales
department receives these orders from the distributors. The manager consolidates the
orders and transfers them to the factory store of finished goods. On receiving the order, the
store in-charge tries to fulfill the orders with the existing inventory. In case the required
model and size of fan is not available in stock than the store in-charge reports the inventory
levels to the production department. The production is scheduled so as to meet the demand
of the particular fans. Once the order is complete, the store in-charge prepares a gate pass
and sales receipt for the order. The gate pass is used to validate at the factory gate as to
what is being shipped. While the receipt is a confirmation that the client has received the
order. The original is sent with the order, where as the copy is faxed to the customer.
The distributors directly place orders with the small-scale manufacturers. They schedule
production only after receiving the orders since they have no warehouse facility. Also due
to the small scale of their production they require little or no paperwork for order
processing.
7.1.3.4 Scheduling
The large-scale manufacturers have to schedule the delivery of the fans for the local as
well as the foreign markets. In order to achieve lower cost of transportation, the leading
players have an agreement among themselves. Under this agreement if two members have
order of fans less than a truckload than they consolidate their orders and deliver by one
truck. Hence, save on the transportation costs. This requires frequent communication of
schedule among the parties. Also, deliveries have to be scheduled, so that there are no
shortages of the fans during the peak season. On average they send a truckload to different
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regions on alternate days during the season. The normal practice in case of large-scale
manufacturers is that they supply for the entire season by May.
In case of medium scale manufacturers the scheduling practices are similar to that of the
large-scale manufacturers. Only the order sizes are smaller and the deliveries are frequent.
The reason for frequent deliveries is that they schedule delivery at the convenience of the
distributor.
There is minimum scheduling by the small-scale manufacturers. The orders are taken on
telephone and the delivery date is promised. Deliveries cannot be scheduled due to the fact
that they only manufacture after receiving the orders.
7.1.4 Marketing And Sales
7.1.4.1 Advertising
Expenditure on advertising and promotion is very insignificant. This is due to the fact that
most of the manufacturers sell unbranded fans and only few players have had the foresight
to invest in branding their products. The industry leaders advertising budget is around
Rs.20-30 million. More than 75% of the advertising and promotional budget is spent on
television. They employ advertising agency to design advertisements that are aired on the
national and satellite television. The advertisement focus is on the cost benefit of the high
quality fans. The large-scale manufactures also advertise in Urdu and English newspapers.
Here, too the consumer is educated regarding the benefits of using better quality fans. In
addition to advertising on television and newspaper, these manufacturers also sponsor
various sports events like the World Cup 1999. Other than the consumer promotions the
large-scale manufacturers also undertake trade promotion. They give the distributors gifts
such as company wall clocks and key-chains.
The medium scale manufactures spend about 50-75 thousand on advertising and
promotion. Most of the advertising budget is spent on Urdu daily papers. Other than
advertising through newspaper they also promote their products on national television. But
limited budget is set aside for television advertisement.
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The small-scale manufacturers do not undertake any promotional activities due to the fact
that they compete in the lower end of the fan. In this segment brand equity has no meaning
and most of the products are unbranded.
7.1.4.2 Channel Selection
The fan manufacturers rely on the distributors for the supply of fan to the retailers.
Distributors are selected on the bases of their reach/contacts with retailer and for dealers
the criterion is their reputation regarding their credit-worthiness. The only difference
between the three segments is that large and medium-scale manufactures have exclusive
distributors, which is not true for the small-scale manufacturers. The large-scale
manufacturers have developed distributors in all the cities irrespective of the size of the
city. The distributor network of the medium scale manufacturers is limited to the major
cities of Pakistan.
7.1.4.3 Pricing
Due to lack of sophistication, pricing policy practiced in the fan industry is not based on
any fancy models. Rather price of the fans is based on cost plus. The norm in the industry
is to supply the distributor at a fixed factory price. There are no price limits imposed on the
retailers or distributors. Only one large-scale manufacturer by the name of Royal has
deviated from this norm, he has fixed the retail price.
7.1.4.4 Repairs And Services
Major fan manufacturers offer lifetime guaranty, which covers replacement of any
malfunctioning part. Other manufacturers offer a warranty for over 10 years to replace
parts. These guaranty schemes have been introduced in the last five years. Since the life of
a fan is over 10 years therefore as yet fan manufacturers did not have to fulfill any claims.
The distributors were apprehensive about the response of the manufacturers once these
claims start. In addition to this distributors of large-scale manufacturers have employed
electrician. Although, in case of installing a new fan, customers usually arrange for their
own electrician. However, when some repair work needs to be done than customers avail
the distributor’s electricians.
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7.2 Support Activities
7.2.1 Procurement
The large-scale manufacturers obtain raw material from local and foreign sources. They
purchase pig iron and recycled aluminum from Karachi, whereas electric sheet and paper
insulation rolls are imported from Korea and Germany. Other than external suppliers of
raw material, the large-scale manufacturers have also integrated backward to provide for
their demand of copper wire. Raw material is purchased for manufacturers own
consumption and also on the behalf of their vendors. By providing the vendors with the
raw material, the manufacturers ensure quality of the end product. The purchasing
department is responsible for the procurement.
The medium and small-scale manufacturers do not supply their vendors with raw material.
Medium-scale manufacturer’s purchases are limited to copper wire for winding from the
leading fan manufacturers. Since small-scale manufacturers are assembly units therefore
they do not procure any raw material.
7.2.2 Technology Development

The technology employed in the fan industry has not changed over the years. Most of the
machinery utilized by the manufacturers is second hand bought from countries in the Far
East. Whereas, other leading fan manufacturing countries like China, Taiwan, Japan and
Korea have fully automated plants geared toward mass production. This investment in
process technology has led to lowering the cost of production for these countries.
Of the three segments, the large-scale manufactures have been open to accepting new
technology in their operations. The leading five players were the first ones to adopt
Computerized Numerical Control (CNC) machines. Also they initiated the new range of
plastic fans. This required investment in the plastic injection machines. Presently, these
players have installed the required machinery for plastic fans in their own facility, and in
the near future they plan to transfer this technology to the vendors. In addition, they are
working toward continuous improvement to reduce labor content and material saving.
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They have also initiated projects to increase capacity through importing high-speed
automated machinery like automatic press.
The medium-scale manufacturers are laggards as far as accepting new technology is

concerned. They usually wait for the large-scale manufacturers to adopt new technology
and only after they are sure about the benefits then they implement in their facilities. The
main hindrance in adopting new technology is their low volumes.
The small-scale manufactures have little initiative to adopt new technology, since their
operations comprise of assembling parts received from vendors.

7.2.3.1 Selection
Educated managers are hired by only the large scale manufacturers. They advertise for the
vacancies in the newspaper. But not many applicants are keen on working in
Gujranwala/Gujrat. Due to this reluctance of the prospective applicants, the fan
manufacturers usually appoint local people with relevant experience. Since the other two
segments do not hire people for the management position therefore they have no criteria
for selection.
As for the hiring of the labor the norm in the fan industry is to delegate to contractors. The
companies have had long relationships with the contractors and contractors are seldom
changed. This is due to the fact that management develops an understanding with the
contractor, which makes it difficult to sever relationship with them. Contractor, on the
other hand are not in the position to call off the relations because fan manufacturers have
informal collusion. Therefore if one contractor leaves any manufacturer than the other
player of the industry refuse to work with that contractors. This pressure of being
ostracized by the fan community is a deterrent for the contractor to leave a manufacturer.
Other than the close ties with the contractors, the manufacturers have a hands-off relation
with the labor.
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7.2.3.2 Compensation
The management is offered competitive remuneration package by the fan industry. The
package consists of housing facility, transport, education and medical benefits. This
package is designed so as to attract applicants with better skills. Inspite of the competitive
package the fan manufacturers are unable to entice the applicant of the required expertise.
This is due to the fact that working in Gujranwala/Gujrat is seen to be very unappealing
since prospective applicants are unwilling to move from the nearby city.
The labor is paid on piece rate. The rational for piece rate is that the demand for fans is
seasonal and hence a production is scheduled accordingly. Due to the seasonality of
production, manufacturers employ mostly temporary labor force with the exception of few.
In order to ensure productivity and motivate the temporary labor is paid on piece rate. The
rate varies according to the complexity and proficiency required for the job. However, the
permanent employees are paid fixed salary and bonuses.
7.2.3.3 Appraisal
Due to the presence of glass ceiling the managers employed by the large-scale
manufacturers have no scope of promotion. Their designation and control span does not
change over the years. Managers with good track record are rewarded through increase in
basic salary and other benefits. In case of the labor salary/piece rate is increased with
experience and proficiency.
7.2.3.4 Labor Relations
The labor of the large-scale manufacturers is unionized. The union often raises their
concerns and issues to the management. The management has handled such concerns very
tactfully. As a consequence of this, management relation with the labor is very cordial.
The medium and small-scale manufactures have non-unionized labor force. But the
laborers are members of external unions. The management has to comply with the
demands raised by these unions. Generally the relation between the management and labor
force can be characterized as amicable.
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7.2.4 Firm Infrastructure

7.2.4.1 General Management
Firms in the fan industry can be categorized as a typical ‘seth companies’ with the top
management comprising of the family members. The educational background and skills of
the owners is inadequate for running a professional organization. The management relies
on experience and relationships built over the years to manage their businesses.
Inspite of the fact that all the firms are family run the quality of general management varies
within the industry. The founding members in the leading organizations have over the
years delegated the responsibilities of managing finance and marketing departments. The
need to hire professionals was a consequence of delegation. The large-scale manufactures
have more professional mangers that are not only better educated but also have the relevant
experience.
In case of the medium scale manufactures the management is still dominated by the family
members. The strength of the managerial staff in these organizations is limited to ten odd
people as opposed to over 25 manager in the leading companies. Due to deficiency in the
management these companies are poorly run. In the past few years a large number of the
medium scale firms were weeded out since they were unable to sustain themselves in the
face of more difficult times.
The small-scale manufacturers are basically ‘one man show’, with the founder responsible
for all the activities. The lack of management is inconsequential for the firms in this
segment. This is due to the fact that they are basically assemblers with little need for
professional management.
7.2.4.2 Finance
Finance department in the fan industry is almost non-existent. Activities such as

investment decision making, forecasting and planning are not performed in this sector.
Lack of usage of financial tools is due the fact that these companies do not possess
employees with financial background.
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Investment decisions are not based on formal capital budgeting analysis. Rather, the large-
scale manufacturers rely on measures like payback to justify investment in any machinery.
Similarly, they plan and forecast very informally. No demand estimates are made and
production is scheduled based on previous years sales adjusted for growth.
The medium-scale manufacturers also lack the human resource to undertake formal
financial activities. Most of the investment decisions to increase capacity are not made
based on the fact whether or not the project is feasible. Rather, their decisions are
formulated by the large-scale manufactures. The small-scale manufacturers purchase in
particular machinery if all the leading players have invested in that machinery.
Small-scale manufacturers do not practice financial management. This is due to the fact
that their small size does not justify any fancy financial practices. Also this segment
purchases all the parts from the vendors and the only activity they perform at their facility
is of assembly. As a consequence they can easily increase production of fans by purchasing
more parts from the vendors.
7.2.4.3 Accounting
Accounting at large and medium scale manufacturers is limited to book keeping. The
larger players employ qualified accountant to manage their books along with few clerks,
while the accounts of the medium players are managed by untrained but experienced
‘munshies’. This allows the players to understand the overall profitability of their
businesses. But they are not acquainted with sophisticated cost accounting measures,
which would help to track cost to each product.
The smaller players do not manage these in details. As a consequence of sketchy accounts
they are not able to ascertain expenses incurred to manufacture a fan. These accounts are
managed just to fulfill government regulations.
7.2.4.4 Legal
The large-scale manufacturers participate more actively in import/export activities. They
import raw material such as electric steel sheet and export all most one third of their
production. These players require legal departments to handle the documentation related to
the imports and exports. Instead of setting up independent legal departments in each of the
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five leading organizations, they have collectively out-sourced these services to one firm.
This allows them access to professional legal advice without incurring excessive cost.
The other two segments have little need for the legal services hence they acquire the
services of lawyers as per requirement.
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Analysis of Fan Industry of Pakistan Financial Practices In The Industry And The Role Of Financial
8 Financial Practices In The Industry And

The Role Of Financial Institutes.
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The financial practices common in fan industry are quiet primitive. The level of
sophistication of these practices increases from small scale manufacturers to large scale
manufacturers, the level of detail and analysis, however, within the industry remains
rudimentary. The reason industrial practices in financial management remains under
developed can be attributed to lack of managerial capabilities in different industrial
segment for maximally utilizing the benefits of the financial services offered by the
market. This lack of managerial capability decreases from large scale manufacturers to
vendors. Large and medium scale manufacturers face little difficulty in utilizing financial
services offered by the different banks. Greater problem is faced by the small scale
manufacturers and vendor segment of the industry.
The analysis of practices carried out by the financial sector in providing services to the last
two segments of the industry is discussed later in the section. An account of financial
practices in different segment of the industry is discussed below.
8.1 Financial Needs And Practices In The Industry
8.1.1 Large Scale Manufacturers

This segment within the industry is the most sophisticated while reporting its financial
performance, accounting practices and making capital investment decisions. However,
these practices serve the management’s purpose while satisfying the financial
intermediaries they deal with. The employment of such practices by this segment is driven
because of the following factors discussed below.
8.1.1.1 Debt To Equity Ratio
These firms have been operating for the last 30 to 40 years, over these years they have
acquired the size at which they are now functioning. These now large firms were started as
entrepreneurial ventures with very small amounts of capital from personal savings of their
own, relatives and friends. This borrowed sum is treated as equity rather than debt. They
have over years build their firms by reinvesting their profits. That is the reason these firms
even now after years of operations and growing to their present size are still debt free.
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8.1.1.1.1 Difference In Financial Practices Of Gujrat And Gujranwala

Sector
The researchers during their project found a marked difference between the origin of
financial practices in Gujrat and Gujranwala sectors. The two big players in Gujranwala
namely Asia Fans and Climax Industries, have financed their growth through heavy
borrowing from local banks during 70s. These firms were the biggest two fan
manufacturers at that time. Climax Industries is the only firm in the industry, which listed
on the stock exchange. The management of Climax Industries carried out a BMR process
in late 1960’s acquiring state of art machinery including automatic stamping presses
(Many of the current large scale manufacturers have acquired these presses in mid 1990s).
Because of many exogenous (Unfavorable business environment e.g. difficulty in
materializing of business transactions with WAPDA, and foreclosure by Banks) and
endogenous factors (Management disputes) led to downturn of one of the most admirable
mechanical engineering firm in the country. Asia Fans (Anwar Industries) also faced
problems, which were internal i.e. Management disputes, which led to breaking up of the
group in 1992 and external problems (Repayment of loans under stressed business
conditions). The experience of these two major players in the Gujranwala sector has caused
a negative impact on debt financing amongst other players of the industry. It was the
downfall of these two major players that created an opportunity for fan manufacturers in
Gujrat to come up. The above cited cases in the industry has thus created an aversion
towards practices involving debt financed expansion in the companies. This has in a way
also effected the growth of the industry.
The firms in Gujrat sector remains to be privately held within the family; Yunas Family
owns Yunas Fans, G.F.C Fans and Metro Fans the combined annual production of these
three firms is about 4 – 5 million fans.
8.1.1.2 Magnitude And Need For Finances

This segment of the fan industry is the most capital intensive, with total capital investment
in equipment, land and building ranging from Rs. 200 – 400 million. Annual sales of this
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segment range from Rs. 100 – 200 million, employing 200 – 300 employees and much
sophisticated machinery.
The sector is compared to other members of the industry is the most organized and often
utilizes the financial services provided by the financial intermediaries operating in the
market. These services are employed in the areas discussed below;
8.1.1.3 Working Capital
Mostly the finances acquired by these large manufacturers from the financial institutes are
in the form of short-term working capital loans. The need of which arises during off
season, these loans are in the form of revolving credit lines or over – draft facilities
extended to these firms on the basis of their past performance and relationship with local
banks.
8.1.1.3.1 Pledge And Hypothecation
These two practices are to little extent common within this segment of the industry to
generate finances for the daily operations of the firm. However, these two services even in
this segment are looked upon with skepticism and are usually avoided unless deemed
necessary.
8.1.1.3.2 Letter Of Credit

As this segment imports some of the raw material (electric sheet etc.) and since this
segment is also involved in exporting their product to different countries, they utilize letter
of credit facilities offered by their local banks.
8.1.1.4 Capital Investment Decisions
The initial growth of these firms was geared by their retained earnings, however, this
growth cannot be sustained for long, as opportunities in the market starts to decline. The
use of financial services available in the market over the years has been increasing,
however, the management still remains skeptical about this practice too. The most favored
source for making capital investments in machinery or increase capacity or capability still
remains to be retained earnings. However, the use of leasing and long term borrowing are
increasing in practice. Among the two leasing is favored over the other.
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The decision making process involves still remains to be under developed, practices such
as Net Present Value (NPV) analysis or Internal Rate of Return (IRR) analysis are not
used, as these firms have no idea about cost of capital. A simple Pay Back analysis or
Break Even analysis is conducted, which estimated the duration in which the total
investment will be recovered.
Most of the decisions about capability enhancement or capacity increment are done
following the actions of main competitors.
8.1.1.5 Financial Markets And Institutions Used
Climax Industries is the only fan manufacturer, which has used the equity market, the other
firms as mentioned above are held privately with in the family. Amongst financial
institutions used only the local banks have been used for different financial services. The
service of DFIs by the industry has never been employed. The reason being
8.1.2 Medium Scale Manufacturers

The segment of the industry does not differ greatly from large scale manufacturers in
interaction with financial institutes. The requirement of this segment is less than that of
large scale manufacturers, however, it utilizes much of the same services used by the large
manufacturers.
This sector lacks more in managerial capabilities as compared to large scale manufacturers,
therefore, financial systems employed and amount of reporting detail is less than their
peers are.
8.1.2.1 Debt To Equity Ratio
Though, this sector faces less difficulty in acquiring bank’s assistance when desired as
compared to small scale manufacturers and vendors; the sector is more plagued with
apprehension of utilizing debt or credit services offered by the formal financial markets.
8.1.2.2 Working Capital
The financial services used are mostly in the form of working capital to finance daily
operations. Standing lines of credit and over draft facilities are used for procurement of
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raw material and other expenses. Practices such as hypothecation and pledging are also
commonly employed.
8.1.2.2.1 Letter Of Credit
As these players have not as yet played any part in international finance their use of letter
of credit is limited. Capital investment decisions remains to be undeveloped using only pay
back break even analysis.
The source of funds remains to be internally generated for expansion or modernization,

though practices of leasing are becoming popular in this segment.
8.1.3 Small Scale Manufacturers And Vendors

The financial reporting practices in these two segments of the industry are minimal. The
firms completely lack the managerial capability to carry out such practices. The day to day
management of finances is carried out usually by the owners or by a senior worker acting
as cashier. Their interaction with the financial intermediaries is minimal and is only limited
to the extent of obtaining small short term financing facilities. However, this segment has
benefited in the past from low interest rate loans provided by different governments in 60s
and 70s.
8.1.3.1 Magnitude And Need For Finances
They are also unaware of different services extended by banks and DFIs. The reason for
this ignorance is lack of interaction with them. Leasing practice, which have become
popular in the upper two segments of the industry is not utilized by this segment. The
capital needs of these segment are minimal, however like the rest of the industry this
segment is becoming stagnant in its technological capability and needs revival which can
only be done by incorporating more capital from market.
The unavailability of recorded information regarding business also makes them

unattractive to banks for lending. The alternative to collateral based lending is positive
cash flow based lending, this form of lending is based on availability of documented proof
of the business of the firm. Since there are no formal contracts in case of vendors with the
manufacturers and small manufacturers do not have detailed documented proof of their
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past performance this further reduces the attractiveness of these players to the financial
sector.
The lack of using financial markets such as debts through banks is also the exorbitant
interest charges 18 – 20% charged by the banks depending upon the nature of the loan.
8.2 Role Of Financial Institutions
Financial institutions over the years have come up with different financial instruments to
cater for different customers in the market. The objective of these financial intermediaries
has been to promote the economical growth of the country. Over the years they have been
following prudent principals of lending i.e. secured financing against collateral in the form
of fixed assets, personal guarantees etc. They have paid a key role in the development of
both organized and unorganized industrial sector. Though the organized or the formal
sector comprising of large and medium scale enterprise have gained more from their
services as it was easier for them to acquire financing; their role in development of small
scale enterprise though minimal can also not be ignored. Government has in the past given
special attention to SMEs and formed special Development Financial Institutions (DFIs)
such as Small Business Finance Corporation (SBFC) and Industrial Development of
Pakistan (IDBP) to cater for the unorganized sector. SBFCs branches were set up
provincially to better cater for the needs of sectoral SMEs. The role of these institutes was
to channel the foreign financial aid for development into different industrial segments. In
doing so they have played a key role in the development of small and medium enterprises.
Small and Medium Enterprises are generally more flexible in responding to market
situations and are major contributors to employment generation, and to structural and
technological change. However, one major constraint on their growth and expansion is the
absence of capital (both working and long term loans). To any firm the need for
availability of credit is important during the five stages i.e. start up, expansion, penetration
of foreign markets, modernization and technological acquisition. The capital should also be
available at reasonable interest rates, the interest rates are dependent on valuation of the
risk. Banks view SMEs as short term risky investments where as they can be looked upon
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as long term investments generating positive cash flows, by doing that banks will benefit
from the segment which is potentially very viable.
8.2.1 Banks
The national and regional banks like Habib Bank, National Bank and Punjab Bank have
been offering players in the industry with different financial services depending upon the
size of the player. The basic principle of lending has been collateral based lending.
Therefor, the beneficiaries of these services have been those firms, which can provide with
the collateral required. By this practice banks have been unable to promote and take active
part in the development of small and medium scale enterprises.
Banks have been focusing on large corporations for ease in assessment of risk and
monitoring of the performance of their client’s business and credit worthiness. SME’s on
the other hand require greater attention and focus on principles of lending other than
currently employed. This makes the financial institutions hesitant in increasing their
dealing with them.
The inability of the banks to fully utilize this opportunity currently is constrained because
of both demand side (industrial practices already mentioned above) and supply side
(lending criteria of financial institutions). The constraints on the supply side includes the
following,
8.2.1.1 Ceilings on the provision of credit.
· National Credit Consultative Committee (NCCC) role has been to devise credit plans
for monetary expansion in Pakistan. This practice has been placing emphasis on
lending to special sectors which has further reduced the availability of credit to SMEs.
8.2.1.2 Lags In Disbursements
Though, different governments have been giving special attention to SME, by offering
special packages for them. This practice to some extent does make for the above
mentioned constraint on the supply side, but the disbursement of these funds create another
discrepancy on the supply side operations. According to State Bank Statistics available the
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applications processed and loans disbursed to SMEs are 40% - 50% of the applications
received and of amount allocated. None of these loans have been for working capital.
8.2.1.3 Improper Risk Assessment
SMEs has been viewed as short term risky investments by the financial institutions rather
than as long term investments generating positive cash flows. Financial institutions do not
have the resources in form of man - power and experience with this segment so as to
properly assess the riskiness associated with small and medium enterprises.
8.2.1.4 Lending Criteria Of Financial Institutions
The criteria for lending as described the financial institutes during the study is as follows
· Ability to payback the loan out cash flows.
· Character of the borrower and reputation of the business.
· Collateral offered for the loan.
However, collateral is given the most weightage in general practice while financing for
any purpose whatever the scale of the firm.
8.2.1.5 Inadequate Systems Of Commercial Credit Analysis And

Provisions
The inability of financial institutes to rely of other criteria of lending has much to do with
the unavailability of adequate system of commercial credit analysis of firms. The
importance of these firms. This reduces the ability of banks to finance small and medium
enterprises, whose attractiveness depends solely on their ability to generate long term
positive cash flows.
8.2.2 Development Financial Institutions

DFIs have been more active in promoting SMEs as compared to banks. Though their role
is commendable but it cannot be said about their performance. Both Industrial
Development Bank of Pakistan (IDBP) and Small Business Finance Corporation (SBFC)
have been running into financial difficulties for some years. The Government of Pakistan
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formed the two institutes to promote Medium Scale and Small Scale Enterprises. The
objective of the two institutes was to channel foreign funds available for development to
different segments of SMEs. However, both institutes suffered because of inefficient
operations. IDBP is still functional and playing its role in promoting SMEs with
constraints already mentioned above, whereas SBFC because of mismanagement in the
past years is now comatose.
Though principle criteria for lending still remains to be collateral based, because of their
reason for existence these organization or less stringent on this principle. Hence, they were
able to participate better as compared to commercial banks.
The failure of these institutes is attributed to following reason
8.2.2.1 Operational Inefficiencies
DFIs were operating as a routing channel for the funds coming to Government of Pakistan
through multinational donor agencies. These funds were given to the government on very
low interest rates. This low interest source of funds relaxed the DFIs in their utilization and
mismanagement and they could not maintain a good quality loan portfolio.
These institutions also lacked human resources as for proper analysis and assessment of
industrial and economical trends. Moreover, they were also plagued with same
inefficiencies like lags in disbursement, inefficient lending and evaluating criteria like the
rest of the financial sector.
8.2.2.2 Political Pressure
Majority of the loans given through these institutions was under the influence of some
political pressure. The default rate under these pressures increased. Because of this the
institutes could not play as much a role in the development of SMEs as what expected of
them. They were unable to strategically invest in the areas, which could have added to the
comparative advantage of the nation.
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Analysis of Fan Industry of Pakistan Government Relations
9 Government Relations
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9.1 Tax Structure
9.1.1 Income tax

Currently a company is treated as a separate juridical person distinct from its owners for
tax purposes. The total income of a company is determined more or less in the same
manner as that of a sole proprietor. A company is, however, not entitled to any earned
income relief, personal allowance or other deduction except the donations for charitable
purposes and unlike individuals the whole income of the company is liable to tax without
any exemption limit.
Fan manufacturers pay income tax at the flat rate of 25 per cent of the whole of its income.
For income tax purposes, the taxable income of a business consists not of its gross receipts
but of residual derived by subtracting from those gross receipts, the expenses incurred for
earning them. In other words, income tax is levied on business profits, not on receipts.
Gross income is synonymous with receipts. But for tax purposes a net income is arrived at
by subtracting such items as salaries and wages, rent, interest charges, depreciation, cost of
material used in production and any other expense, which is necessarily and exclusively
incurred for business purposes, from the gross income.
9.1.2 Sales Tax

Sales tax is one of the major sources of revenue for the government. It is collected by the
Federal Government, but 80 per cent of the revenue is distributed among the provinces. It
is collected on all the goods imported or manufactured in Pakistan. At the import stage it is
collected along with the customs duty on paid value by the Customs Department and on
the local items, which are liable to central excise duty on the excise duty paid value by the
Central Excise Department. Whereas, sales tax on domestic products not subject to excise
is collected by the Income Tax Department. Sales taxation can take many forms. The turn
over tax, the manufacturer’s sales tax, the whole sales tax, the retail sales tax, and the value
added tax are the different types of sales tax prevalent today. Sales tax may be imposed at
the retail, wholesale or manufacturer’s level. It may be a multiple stage tax or a single
stage tax. The multiple stage tax is generally known as a turnover tax and is levied at each
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stage of transaction. The value added tax is increasingly adopted in many western
countries.
Currently fan manufacturers are paying fixed sales tax regardless of their production,
according to the rates given below in the Table (S.R.O. 904(I)/93, Dated 5-10-1993).
Introduction of this fixed rate taxation is considered a milestone in the history of
simplification of excise procedure. The levy of duty on the basis of number of machines
constitutes a novel experiment, perhaps unique of its kind in the developing world. Since
this tax was to be a fixed charged on the basis of number of machines of each
manufacturing unit, its collection was considered to offer no problem once the number of
machines had been determined in each unit. It was hoped that the new measure would
give a great fillip to production as the amount of tax payable by a manufacturer would not
be related to the actual production. Thus the more the production the lower would be the
average incidence of tax per unit of output.
TABLE 8 SALES TAX STRUCTURE
S. NO. CATEGORY OF FACTORIES LIABILITIES OF SALES TAX PER ANNUM

1 NOT MORE THAN 4 LATHES RS.13,500 PER LATHE.
lathe.
lathe.
4 11 TO 15 LATHES Rs.256,500 for the first 10 lathes plus Rs.67,500 per
additional lathe.
5 ABOVE 15 LATHES Rs.594,000 for the first 15 lathes plus Rs.108,000 per
additional lathe.
The measurement of production capacity to fix the rate for a machine proved to be the
most baffling problem of all. There have been complaints of excessive technical
assessment and wide disparities in tax burden of similar units. Other problems, which have
arisen in the administration of fixed sales tax i.e. frequent ascertainment of, installed
capacity of individual units, supervision of dismantling, removal and restoration of
machines, certification of closures and stoppages for the purposes of abatement of duty. It
has been maintained that the problems arising in fixed rate tax administration and the
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nature of disputes involving huge amounts are such that they can be decided upon only by
the Central Board of Revenue and the Central Government.
9.1.3 Local Taxes

In Pakistan, as in any other country with a Federal Structure of Government, there are three
levels at which the functions of Government are exercised - Federal, Provincial and Local.
Naturally, corresponding to these three levels on the administrative side, there are three
levels of authorities exercising tax jurisdiction. These are the Federal Government, the
Provincial Government and the Local Bodies. The Local Bodies have specific duties and
responsibilities in matters affecting the life and activities of the residents of their localities;
they have lately gained in importance because of the emphasis on development and stress
on the growth of democratic institutions and people’s participation in the management of
affairs from the grass root level. The only relevant tax for fan industry among local taxes is
Octroi or Zilla tax i.e. the duties on goods meant for consumption within the city or
district. Octroi duty, which in payers opinion, is a thoroughly unpopular levy and is, by all
canons of taxation, primitive and undesirable. This tax is considered to be a major source
of harassment, corruption and malpractice and is an impediment to trade and industrial
growth.
9.2 Proposed Tax Structure By Fan Manufacturers
9.2.1 Income Tax

9.2.1.1 VIP Status
All assessee be given due respect in all government departments, particularly those who
are paying tax of over Rs. 100,000/- be given VIP status all over the country and special
cards should be issued to these tax payers or manufacturers in this regard.
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9.2.1.2 New Assessee
The new assessees may be allowed to file return at any time without any penalty or any
action against them as per self-assessment policy. The new assessees may be allowed to
pay tax at flat rate on the assets declared by them for the first time.
9.2.1.3 Harassment by Tax Department
To enable the assessees to pay their due taxes without fear of harassment, we propose the
following steps as part of a comprehensive scheme to make the manufacturers to be tax
payers:-
· All returns would be under self-assessment scheme even where loss has been declared.
· If within nine months of filing of return the assessing officer detects no discrepancy it
should constitute final assessment.
· If the assessing officer detects discrepancy or has definite proof or concealment by the
assessee, he will send written intimation for seeking clarification from the assessee
given two weeks time from the receipt of the notice for such clarification. If need be
the assesses may be given a total of three such opportunities to clarify, in writing to
queries of assessing officer. There would be no personal contact between the assessing
officer and the assessees and/or his authorized representative.
· In case the assessing officer is not satisfied with the replies submitted, he would file
his appeal with the first appellate forum along with his assessment for adjudicating
thereon. The appellate for would be under the judiciary and not the CBR.
· No demand will be created against the assessee unless the Assessment of assessing
officer is upheld by the first appellate form.
9.2.1.4 Self Assessment Scheme
About 80% of the assessees in Pakistan are materially and directly affected by the
Self-Assessment Scheme. The scheme is made each year by CBR without any participation
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of the Parliament. This tantamount to enactment by CBR. The scheme is changed every
year. So much so, certain major clarifications affecting the scheme are made public only a
week before the due date of filing of the tax returns. Some times such clarification is made
after due date. Further, after every couple of years the tax return forms are changed. For
example, in last 10 years tax return forms have been changed four times. It is
recommended that CBR should not design the Self-Assessment Scheme instead the
Parliament should do this job. Like wise the Forms of Tax Returns should also not be
changed frequently. Efforts should be made to increase the number of new assesses by
introducing the most lenient method of taxation.
9.2.1.5 Fixed Tax Scheme For Small Business
The fixed tax scheme was introduced in assessment year 1991-92. The scheme was failed
due to the following reasons:-
· The scheme was only for new assessees and were not for existing assessee.
· The scheme was only applicable if income was not more than Rs. 36,000/- and capital
of the business up to Rs. 100,000/-
· The scheme was not properly advertised.
It is suggested that the scheme should be prepared with consolation of Trade Bodies and
tax be collected on broad bases, such as limit of capital up to Rs.1 million and income up
to Rs. 300,000/-. The fixed rate be allocated according to income and capital. Fixed
Income Tax be introducing on machine basis to at least bring this sector in to the tax net by
saving them any apprehended harassment by the Tax Department.
9.2.1.6 With Holding Tax Rate
The with holding tax rate is higher. It should be reduced to 2% to 3.5% in case of supplies
and from 5% to 4% in case of contractors. Resultantly collection will be increased. At
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present companies and registered firms (with capital of Rs. 1.5 million or more) have to
compulsory deduct with holding tax u/s 50 (4) and 50 (7A) on their purchase of goods and
services which ranges from 3.5% for goods and 5% on services and contracts, to 7.5% for
rent. The sole proprietorship and firms with less then Rs. 1.5 million capital do not have to
deduct these withholding taxes. This puts companies and registered companies (with
capital of Rs. 1.5 million or more) at a distinct advantage with their purchase cost
increasing by 3.5% to 7.5%. Since suppliers increase their prices by these amounts. This
also retards the growth of the corporate sector.
It is suggested that this with holding tax deduction should be made compulsory for all
payers, irrespective of their status which will (a) help in documenting economy and (b)
increase the Govt. tax revenues and (c) remove discriminatory application of income tax
rules.
9.2.1.7 Income Tax Deducted By Banks

The income tax deducted by the banks on realization of export proceeds constitutes full
and final discharge of income tax liability of the exporters filing the returns. The income
tax so deducted constitutes a substantial amount of income tax refund. The payment of
such refund by income tax department is very time consuming. It is therefore suggested
that the exporters should be exempted by the deduction of income tax under the subsection
of section 50 of Income Tax Ordinance 79.
9.2.1.8 Concessional Rate Of Taxation
Efforts are being made by Government to encourage documentation in the economy. It

towards this end in mind that the registered firms were allowed a concessional rate of
taxation in the past. Un-registered firm pays income tax at the maximum rate of 20%
whereas a registered firm pays super tax at the rate of 25% plus partners tax at the rate of
20%. In addition to this concessional rate of income tax un-registered firm also enjoy lot of
exemption from Income Tax Ordinance 79, clauses. It is therefore suggested that the
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Government should review this situation and make necessary changes in the law to allow
concessional rate of taxation to registered firms as well.
9.2.1.9 Appeal Fees
Appeal fee in Income Tax is Rs. 1,000/- whereas in W/Tax it is Rs. 2,500/-, which should
be Rs. 1,000/- or minimum in both cases.
9.2.2 Sales Tax

9.2.2.1 Minimum Penalty
The minimum penalty has been laid down to be paid by the person who fails to submit his
return by the specific date. It is submitted that penalty should not be levied in case where
delay is genuine and beyond control of the person. It is suggested that the provision should
be incorporated in the Sales Tax Act 1990, whereby issuance of Show Cause Notices is
made necessary and penalty should be imposed only after it has been adjudicated that the
cause of delay is willful on the part of the person concerned.
9.2.2.2 Penalty For Delay In Payment
It is provided in the Sales Tax Act that delay in payment will carry automatically
additional amount of Sales Tax by way of penalty/interest. This provision is being misuse
in case where there is a dispute about the taxability of any product, the penal provisions are
being brought to play. It is, therefore, suggested that this provision may be suitably
amended.
9.2.2.3 Rate Of Sales Tax

Most of the leading Sales Tax Collectorate are working with negative figure, i.e. where
refund is more than actual collection. To stop leakage the best way is “no duty no
drawback” on the other side maximum rate of Sales Tax should be 1%.
9.2.3 Wealth Tax

9.2.3.1.1 Exemption
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The statutory exemption be raised to Rs. 2 million. The assessee whose income exceed
Rs. 200,000/- should file the return instead of Rs 100,000/-
9.2.3.1.2 Value Of Properties
The value of properties should not be increased every year. The value of plots and vacant
properties should be taken at cost where is no schedule framed by Municipal Committees.
9.2.3.1.3 Wealth Tax To Be Abolished
Presently intricate and cumbersome procedure of submitting Wealth Tax Return and
arbitrary scrutiny of these return create unpleasant situation besides causing lot of time and
inconvenience. In the presence of Income Tax, the Wealth Tax needs to be abolished but in
case it is thought prudent to phase it out, the following measures would be required in the
interim:-
· Exemption limit be increased to Rs. 2.5 million.
· Single slab of 0.5% be applied to taxable wealth.
· Assets be valued at cost.
· Dead assets such as investment made in industrial units, which have become sick,
shares of companies declaring dividends, etc., should be exempted from wealth tax.
9.2.3.2 Exports Of Electric Fans
Fan Industry of Pakistan after meeting the entire demand of local market has a great
potential to earn foreign exchange by exporting of electric fans which ultimately will be
helpful in utilizing full installed capacity
On export of electric fans a nominal 5.6% rebate is admissible which is not sufficient for
industry to compete in the International Market price wise. In order to be competitive to
attract the International Market from India, China and Taiwan, it is need of time to enhance
the rate upto 12% and also subsidy of at least @20% be awarded to the exporters of
electric fans as is already being given in India and China. The Electric Fan Manufacturers
can play a very positive role for the betterment of economic situation of the country by
exporting thousands of fans, provided our genuine demands are met.
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9.2.3.3 Excise Duty
The government is substantially reducing import duties on various finished products and
increasing the sales tax coverage on local products. In many cases there are double tax by
imposing both excise duty and sales tax. This is leading to a drastic reduction in Effective
Protection Rate to local industries.
It would be necessary in many cases to abolish excise duties so that the effective protection
rate of local industry remains at a level where it can compete and survive.
9.2.3.4 Zilla Tax
The Zilla Tax is charged on the transfer of Goods from one District to another. The system
has been awarded to the contractors, firstly the staff tries to charge the extra amount on the
goods. Secondly they behave rude on the tax posts situated in the Jungle. The Zilla Tax on
Export is zero rated and refundable after payment, but:
· The staff tries to over charge tax amount.
· The staff misbehave with the carriers.
· The staff charges Zilla Tax on maximum vehicle.
· After the payment contractor does not make refund in a year.
Of all the above Zilla Tax (Export Tax) has become a very obnoxious tax due to the high
handedness of the contractors and needs to be withdrawn.
9.2.3.5 Miscellaneous
9.2.3.5.1 Reduction Of Tax Collecting Departments.
· There are 24 Federal Taxes, 15 provincial Taxes, 6 Labor Related levies and 14 Local
Bodies Taxes which are being paid by business community.
· A factory from the day of its birth is to deal with 59 Departments and all the talent of
Industrialist consumed while dealing with these departments.
· It is a long standing demand of the private sector trade and industry that tax collected at
various levels of Govt. Federal, Provincial and Local Bodies - be reduced to the
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maximum possible extent as these are great source of harassment and wastage of time
and energy. This will also result in saving in tax collecting charges of the Government.
· Ideally, it will suit the trade and industry if there are only three tax collecting agencies,
one each at Federal, Provincial and local bodies level and may be given the name of
“One Window Taxation System”
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Analysis of Fan Industry of Pakistan International Markets
10 International Markets
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10.1 Fan Exports From Pakistan.
10.1.1 Direction And Concentration Of Pakistan Exports

The export market potential of the fans has been recently tapped by some of the
manufacturers in the industry. Pakistan’s direction of export and its concentration is given
in Table 9 and statistics of trade for the past 5 years is given in Table 10. The major export
partner has been Iraq in 1993, however, these exports were not continued over the years
and recently Bangladesh has emerged to be the major trading partner in both categories of
fans (i.e. SIC 74341 and SIC 743453)
TABLE 9 QUANTITY SHARE OF PAKISTAN EXPORTS TO DIFFERENT COUNTRIES
1997 1993 - 1997

Fans (74341) %age
IRAQ 0% 45%
YEMEN NA NA
BANGLADESH 73% 33%
IRAN (ISLM.R) 4% 12%
SAUDI ARABIA 22% 3%
UNTD ARAB EM 1% 8%
S.AFR.CUS.UN NA NA
Fans (74343)
BANGLADESH 31% 32%
SOURCE: PC TAS SOFTWARE.
TABLE 10 EXPORT OF FANS FROM PAKISTAN (1993 – 1997)
1993 1994 1995 1996 1997 1993-97

Fans (74341) VALUE QNTY VALUE QNTY VALUE QNTY VALUE QNTY VALUE QNTY VALUE QNTY
(000s) (000s) (000s) (000s) (000s) (000s)
WORLD $4,288 42166 $32 1068 $165 7736 $368 17750 $435 14564 $5,288 17748
IRAQ $2,615 41899 $2,615 41899
YEMEN $1,313 $1,313
BANGLADESH $8
400 $22 834 $150 6926 $152 13519 $97 9482 $429 31161
IRAN (ISLM.R) $282
10500 $36 500 $318 11000
SAUDI ARABIA 7$1 $2 12 $234 2838 $237 2857
UNTD ARAB EM $67
4580 $14 810 $100 1536 $$6 138 $187 7064
S.AFR.CUS.UN $74 $74
Fans (74343)
WORLD $43 800 $80 2163 $52 3212 $149 8781 $156 7387 $480 22343
BANGLADESH 0 0 $16 258 $8 320 $107 6539 $71 3374 $202 10491
SOURCE: PC TAS SOFTWARE
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The average price of fans exported by the local industry in the international market are given in
Figure 12
FIGURE 12AVERAGE PRICE OF FANS EXPORTED FROM PAKISTAN.
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
1993 1994 1995 1996 1997
FANS WITH LESS THAN 25W MOTOR (SIC 74341)

INDUSTRIAL FANS (74343)
10.2 World Markets
The export of fans in the two categories i.e. Fans with motor less than 25W (SIC 74314) &
Industrial fans (SIC 74343) are given in
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Table 11. The market has been over a period of five years (1993-1997) growing at a rate of
6.4% for fans with motors less than 25 Watts (SIC 74341). With respect to quantity the
market has been growing at a rate of 23%, all this slightly offset by the decline in world
average prices which is by 14%. The total world market is worth $ 1.1 Billion in 1997 –
1998.
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TABLE 11WORLD EXPORTS OF FANS
Fans (74341) 1993 1994 1995 1996 1997 1993-97 GROWTH

VALUE(000) $ 808,253 $ 910,010 $1,141,921 $ 1,200,282 $ 1,104,177 $ 5,164,643 6.40%
QUANTITY 47,987,878 64,591,049 97,773,751 127,202,148 140,154,821 477,709,631 23%
AVERAGE
PRICE $16.84 $14.09 $11.68 $9.44 $7.88 $10.81 -14%
Fans (74343)
VALUE(000) $1,511,035 $1,810,022 $2,317,771 $2,410,918 $2,442,325 $10,492,071 10%
QUANTITY 25,390,801 29,073,062 37,053,048 11,441,528 16,030,066 118,988,506 -8%
AVERAGE
PRICE $ 59.51 $62.26 $62.55 $210.72 $152.36 $88.18 21%
Source: PC TAS Software.
From trade information available with United Nations Center of Trade and Development,
an analysis of world trade of fans was conducted keeping in view the current technological
capability of the industry and different markets are identified. The characteristics of these
markets are discussed below.
The selected world trade statistics are given in the

Table 12 Selected World Trade Statistics. The biggest market in terms of quantity is Asia,
whereas in terms of value the biggest market is Europe. A basic strategy for entrance into
these markets is discussed below.
Table 12 Selected World Trade Statistics
CONTINENT QUANTITY VALUE AVG.PRICE VALUE QNTY.
GROWTH GROWTH
RATE(%) RATE(%)
EUROPE $ 1,193,640,000.00 $ 29.83 4.2% 3.8%
40,011,949.00
AFRICA $ 7,191,000.00 $ 96.25 -35.44% -2.47%
74,711.00
ASIA $ 753,007,000.00 $ 12.96 8.00% 0.07%
58,101,954.00
CENTRAL $ 6,291,000.00 $ 2,296.82 34.75% 30.24%
AMERICA 2,739.00
NORTH $ 754,303,000.00 $ 19.78 2.95% 4.54%
AMERICA 38,132,284.00
SOUTH $ 103,931,000.00 $ 2,775.19 -1.28% -1.89%
AMERICA 37,450.00
OPEC $ 9,223,000.00 $ 2,520.63 -36.64% -26.45%
3,659.00
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10.2.1 Early Entry Markets

The exports of fan are to different markets are subject to product market fit. The average
export price of Pakistan’s fan is $20 where as China and Taiwan are supplying fans at
much cheaper rate in all markets. However, the fan produced by the domestic industry is
popular in countries with similar climatic conditions as that of Pakistan. These markets
should be targeted first. These markets include Africa, Central and South America. Detail
of individual markets and the countries are given below, where local fan manufacturers can
target their efforts.
10.2.2 Late Entry Markets

These are the markets where Pakistan cannot currently compete with other exporting
countries because of price and technology. These markets have tremendous potential and
should be looked upon as long term strategy by the fan manufacturers. These markets
include European and American markets.
10.2.3 Africa
Continent of Africa promises a great potential for the imports of fans. The total African
market is declining at a very high rate. In 1997 the quantity of imported fans have declined
from a record high of 131,220 units to 74,711 units. Still for Pakistani fans the continent is
an attractive market. There is a declining trend in the annual average price levels. The
prices have dropped to the level of $ 96 from a high of $ 500 in 1993. The high price range
indicates that it is a market for fancy, high quality and durable fans. The detail information
about the 1997 traded quantity, value and average prices are given in table below.
10.2.4 Asia
In 1997 continent of Asia imported 58,101,954 units of fan for worth $ 753,000,000
dollars. The annual average price for 1997 was $ 13. The prices have increased over the
last five years period. Because of this increasing trend in price range the growth rate in
dollar value for the period 1993-1997 is 8% as compared to the quantity growth rate of
0.07%. The average prices are higher than the prices of Pakistani fans. As these markets
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are the future potential for fan exports, hence we hope that in the coming years if
technology advancement is provided to the manufacturers, we will be able to compete in
this price range. The details of growth rates and prices are given in table. For country wise
breakdown refer to Appendix B.
10.2.5 Central America

Central America is an attractive market for exports of fans because of the high quantity
growth rate of 30%. The countries in this region imported $ 6.3 million worth of fans. The
growth rate in dollar values is 34%. The price data for this region can not be explained
because of high degree of discrepancies. The market share of top five countries is
explained in the chart. For details and country wise breakup please refers to the Appendix.
The volumes imported, average price (1997), value and growth rates are given in table
below.
10.2.6 Europe
The growth rate of 4% in quantity of fan exports makes the countries included in this
region an attractive target for exports of fans. The European market imported 40,011,949
units of fans in 1997 at an average price of $ 30. The prices in this region have remained
somewhat stable over the last five years. The average price range is higher as compared to
the average price of $ 24 for Pakistani fans. The table below shows the 1997 data for
average price, quantity, value and market growth rate. For country wise details please refer
to Appendix. The market shares of top 5 partners are shown by the graph.
10.2.7 North America

In quantity and dollar value terms the North-American market for imported fans is growing
at the rate of 4.5% and 3% respectively. This region imported $ 754.3 million worth of
fans in 1997 at an average price of $ 20. The prices have a stable trend and have varied in a
narrow range of $ 19 to $21. The average price is close to the average prices of $ 25 for
Pakistani fans. The country wise data is given in the Appendix. For market growth rates,
average price for the region and quantity imported in 1997 please see table. The market
shares of top 5 countries are shown by the graph.
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10.2.8 South America

The South American region imported 37,450 units of fans for worth $ 104 million. The
average prices in this region can not be explained. However, the market is shrinking
experiencing a negative growth rate of 1.8% for quantity and –1.3% for dollar value terms.
The table below shows the 1997 data for average price, quantity, value and market growth
rate. For country wise details please refer to Appendix. The market shares of top 5 partners
are shown by the graph.
10.3 Potential Markets
10.3.1 Bangladesh
Bangladesh is one of the biggest export market for Pakistani fans. The major share of the
Pakistani exports is to Bangladesh, over the period of 5 years of the total fans exported
33% has been to Bangladesh. In 1997 the value of exports to Bangladesh was $97,000
where as the quantity of fans exported was 9,482 units.. Bangladesh is the first market
tapped by Pakistani manufacturers, and the quality of fans exported by Pakistan is
recognized in that market.
10.3.2 Iran
According to the recorded trade data for last five years it is a plus 50,000 units market. The
volumes are at the same level. Pakistan is exporting good volumes of fans to this market.
The fans exported from Pakistan mostly are pedestal fans and ceiling fans. Pakistani
products here are known for quality and durability. So far there have been no complaints
coming from this market. Pakistan exported 10,500 units in 1993 at a price of $ 27, as
compared to the average price of $ 20 in the Iranian market. Pakistani fans are little
expensive but the customer is willing to buy it because of it high quality and performance.
Fans exported from Pakistan have 24% of the total market. The good reputation of
Pakistani fans will help in exploiting and increasing the market share Pakistani fans in
Iranian fan market. The Appendix B. Trade Statistics provides detail on 1997 average price
for the imported fans. This also provides data about the different countries exporting fan
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their volumes and prices over the last five years period. The major export partners for fans
include China, Italy, Germany and Pakistan.
10.3.3 Sri Lanka

It is an emerging market. The growth rate recorded in the export market is 6%. In 1997 the
quantity of the fans supplied were 69,607 units. The 1997 average price was $ 26. The
average prices are closer to the prices of the fans supplied by the Pakistani manufacturers.
The market gives a high growth potential and there is a demand for the pedestal fans of
52”. The average temperatures are 32 to 35 centigrade. The electricity is expensive in Sri
Lanka. The middle segment is 80% of the total population, which can not afford air
conditioners. So the demand for fans is great. The details about the average price breakup
and volumes for the major exporters are given in Appendix B. Trade Statistics.
10.3.4 Indonesia
There has been a decline in Indonesian fan imports. The imports have declined from
104,625 units in 1996 to 70,536 units in 1997. The major importers of this market are Italy,
Japan, China, Korea, France and USA. The share distribution among the major players is
given in Appendix B. The table also includes the last five years price, volume and quantity
data. The largest share is with Italy (46%) followed by Japan (32%) and China (11%). The
average price for the Indonesian market is $ 16. Over the last five years the prices have
varied between $ 16 to $21. Italian firms quote the average lowest price, which is $ 5. The
market high and low is $30 and $ 5. These averages are based upon data of 1997. The
Pakistani fan manufacturers have not yet entered the market. In this market they have to
compete against the Japanese and Chinese fans.
10.3.5 Malaysia
Malaysian imports for fans in 1993 were 362,154 units from major fan exporters. Over the
period the imports have decreased and now the imports and exports are almost at the same
level. In 1996 the imports were 167,807 units and imports exceeded to the level 75,612
units. So introducing fans to this market can help in wide market accessibility to other
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partner countries of Malaysia. The annual average price prevailing in the market is in the
range of $20 to $ 25. This average is close to the prices of Pakistani imported fans. The
countries operating in the upper price bracket are Germany and Singapore with price range
between $ 30 to $ 50 on average and the countries like Japan and Hong Kong are
supplying for prices between $12 to $15. The import market size, prices and country wise
breakup is given in Appendix B. Trade Statistics
10.3.6 Turkey
The strong players in the import market in Turkey are Germany (55%) and Italy (20%). It
is because of the easy access to the European countries. The growth of the fan imports is
very attractive. In 1997 the imports from major world fan exporters were 833,704 units. In
1997 the average price was $16. The fans provided by USA and Germany were in the
lower price segment. The price quoted by these countries were $6 (Germany) and
$5(United States of America). The details about exporter country, average prices and
quantities exported are given in Appendix B.
10.3.7 Yemen
Pakistan is exporting currently to this market. The recorded exports from the major fan
exporters have declined to the level of 5,755 units. And the shift is towards the smaller
exporters. The competition in this market is from China, India, Germany, Italy and Japan.
The average prices are lower than the prices provided by Pakistani manufacturers.
10.3.8 Saudi Arabia

The Saudi market is growing at the rate of 5%. The market size is pretty huge. In 1997 the
units imported from major world exporters were 931,283 units. The average price for 1997
was $ 17. There are two distinct segments of the market. In the higher segment of the
market about 112,960 units of fans were imported. The price range for these fans is
between $ 44 and $ 55. Pakistan has been exporting fans to this market since early 90’s.
The fans exported from Pakistan are in the high price range. The average price quoted for
the order in 1997 was $82 per fan. Pakistan is exporting fans to this market but the total
volumes are low as compared to the total market size. The reason for this very huge market
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is that Saudi Arabia is re-exporting the fans to neighboring Muslim countries. The
Pakistani manufacturers are known for the high quality and durable products. It was also
mentioned by GFC the biggest fan exporter that Pakistanis in this market can be of great
help. He mentioned that when he first time sent fans they were sold from the retail outlet
owned by a Pakistani. The details of the country wise breakup of fan’s supply are given in
Appendix B. The average prices for last five years are in the range of $ 20 to $ 25.
10.3.9 United Arab Emirates

Pakistan is currently entered the UAE market but the volumes exported as compared to the
fan imports of UAE are very minimal. In 1997 the recorded volumes were-----, as
compared to the total fan imports of UAE of 892,838. There is a strong market for Chinese
and Japanese fans. The annual average prices were in the range of $ 20 to $25. But in 1997
the prices fall to the level of $ 14. This decline was because of the fans supplied by
Germany and Japan for the average prices of $ 7 and $ 9. The country wise details of the
fan imports to United Arab Emirates are given in Appendix B.
10.3.10 Bahrain
Bahrain is a potential export market for the Pakistani fans. The exports to Bahrain from
major fan exporters are given in Appendix B. The data reported is for the last five years.
The trend shows that the fan exports have increased from 44,912 fans in 1993 to 105,757
fans in 1996. The annual growth rate in Bahrain for fans export is 32% over the past five
years. According to the export figures of 1997 the major share is with Japan accounting for
the 63% of the fans exported by the major fan exporting countries. The average price for
the imported fans in Bahrain is $ 11. The reason that Japan has such large share of the
imported fans in Bahrain is the price. Japan is exporting fans to this market at an average
price of $6, which is lowest as compared to $ 15 that is the average price quoted by China.
The reason for this price differential apparently is the volume sold. Japan is selling 28,000
fans as compared to 2,757 fans supplied by China.
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10.3.11 Oman
In Oman the exports of fan are growing at the rate of 4%. The market size in 1997 was for
135,325 units. This volume is the share provided by the major fan exporters of world.
Among the top exporters of world Hong Kong is on the top of the list with 39% share of
the market and USA with 33% of the market share. The average price for 1997 is $23.
However the average prices were in the range of $ 12 to $ 32. If Pakistan enters the market
then it competitors will be India, China, Japan and Singapore. The prices quoted by these
competitors have decreased over five years period from $ 40 to $ 20. So Pakistan have to
promote its product as a high quality brand to charge the premium price. The country wise
breakup of the imports is given in Appendix B.
10.3.12 Qatar
The price range is close to our product prices and it is in the region with which Pakistani
fan exporters are familiar. The knowledge of the neighboring countries will ease the
market access and penetration. Currently the major players in this market are China, Japan,
Hong Kong, Singapore and USA. Japan has a strong foothold in this market among the
major exporters. The exports from Japan have 80% of the market of the top exporters of
fans to Qatar. The annual average prices have declined from $ 20 to $ 13 over the last five
years. The Appendix B provides the details about the five year average prices, volumes
country wise.
10.3.13 Kuwait
In 1993 the exports of fan to this market were over 229,000 units. Last year the recorded
exports were 154,403 units. The major export countries are Japan with 80% and USA with
12% market of the major fans exporter market. The other export partners include China,
Hong Kong, Italy, Japan and India. Pakistan has not tapped the potential of this market
fully. But the product has been introduced on the small scale through re-exports from
Dubai and other neighboring countries. In this market also the good repute of the Pakistani
fans will help in the early acceptance of the product. The product performance and
qualities will also match the requirements of the market, as the climatic conditions here are
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similar to Pakistan and the countries where Pakistan is currently exporting. The average
prices over the period of last five years are in the range of $12 to $28. The players for the
fancy or higher value fans are Singapore, Thailand and Italy, whereas China, Hong Kong,
Italy and Japan are in the lower end of the market. The country wise details are given in
Appendix B.
10.3.14 Jordan
The major exporters of fans to this market include Italy, China, India, Japan, Thailand and
USA. The major market share is with China (37%) and Japan (45%) among the major
exporters. This is also a potential market for Pakistan. Pakistani fans are being sold to this
market through Dubai, which is said to be the hub for Pakistani export products. The
Appendix B provides detail about the average price, quantity and dollar value of fan
exports. However these are the recorded exports. The values are less than the actual level
especially in case of Pakistan. In Jordan also the good repute of Pakistani fans in UAE,
Saudi Arabia, Iran and Iraq will help in the early acceptability of our products.
10.3.15 Lebanon
Lebanon markets for exported fans are over 116,000 in 1997. The market is growing at a
rate of 18%. The major portion of the export market is with China and Italy. The average
prices for the yearly exports are in the range of $ 20 to $ 30. Last years average price was $
22. Pakistan has not started exporting fans to this market. Pakistani fans will be cost
competitive in this market as our prices are in the range of $ 20 to $ 25. The major fan
exporters are China, Hong Kong, Italy, Japan, Thailand and USA. The country wise details
of the Average prices, volumes and quantities are given in Appendix B. The high price
players in this market are Hong Kong, Thailand and China. The Japanese, Italian and USA
brands are in the lower price range.
10.3.16 Egypt
Egypt also falls in hot climatic region and the socioeconomic conditions are similar to
Pakistan. There exists a market for exported fans. Currently the major exports are from
India, Germany, France, Singapore, USA, Italy and Korea. Among these major exporters
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the largest share is with Japan (44%) and Singapore (28%). The detail for the market share
for the major fan exporters in Egypt is given in Appendix B. The average price for this
market is $ 15. The high and low prices for imported fans are $ 28 quoted for fans
imported from Singapore and $ 7 for Japanese fans. Pakistan has not yet supplied fans to
this market but the fan manufacturers that are into fan exports declare it as a potential
market and have plans to tap the potential of imported fans market in Egypt.
The market is growing at a rate of 9% over the last five years. It has increased from 80,280
units in 1993 to 111,976 units in 1997. The detail about the values and quantities is given
in table bellow.
10.3.17 Kenya
The Pakistani fan manufacturers in the export business have identified African countries as
their next target market. They have a plan to introduce Pakistani products to the African
markets. It is a fragmented market a number of countries are accounting for small share of
the total market. The major fan exporters include USA, China, India and Singapore. The
average prices are in the range of $15 to $ 40. The higher price bracket includes some
fancy product. The country wise break up is provided in the Appendix B. The fans from
Singapore are in the higher price bracket (), whereas China and India are in the lower price
segment. Pakistani fans are some where in between these price ranges.
10.3.18 Russian Federation

The market for imported fans in 1997 was 112,517 units. There is the decline in the share
of the top world fan exporters for this market. The strong hold is of German fans with 80%
market share. The other major brands include countries like France, India, Italy, Korea and
USA. The average price for year in 1997 is $ 15. There is not much difference in the prices
over the last five years. The details about the trade between Russian Federation and other
major fan exporters are given in Appendix B.
10.3.19 Kazikistan/Ukraine/Uzbekistan
Kazikistan is one of the Muslim states that emerged as independent markets after the break
up of Russia. It is an emerging market the growth rate in the imported fan market is 24%.
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Last year the exports were 14,770 units. Pakistan has exports and imports of food products
with Kazikistan. Because of this already establish trade channels market entry to
Kazikistan would be easy. The prices last year were in the range of $ 10 to $ 13. The
average prices in 1996 were $ 20. The major share of the export market is with Germany
and US manufacturers. The growth rate in this market is attractive. The country wise
details about volume sales, average prices and quantities are given in Appendix B.
10.3.20 South African CUS.UN

This market was growing at the rate of 15% from 1993 to 1996. The market share of the
world top fan exporters has declined to 94,282 units in 1997. Still the market size is big
enough to put an effort. While talking to the fan manufacturers about the potential export
markets; they highlighted the South African Countries as their next target market. The
reason given in support of this market was similar climatic conditions and the product
requirements. The average prices prevailing in this market is between $ 20 to $ 38. So
Competition will be on product quality and easy product availability. The current size and
the major competitors in this market are given in the Appendix B.
10.4 Conclusion
The export markets for fans are divided into two segments. One is the existing export
market where Pakistani fan manufactured have introduced their products and their
neighboring countries. . Second are the potential markets, which are identified as the world
top fan importers. Both the markets have high potential for Pakistani fans.
10.4.1 Existing Export Markets

Currently Pakistan is exporting fans to Middle East. The list of the countries and the
quantities exported in terms of percentage of total Pakistan exports is given in table below.
Pakistan is exporting fans to these countries for last five years but the share of Pakistani
fans in these markets is very small. As reported by the Manufacturers the Pakistani fans are
developed a high quality image over the past years. There is room for expansion into these
markets. On basis of value Nigeria is top of the list with imports worth of $ 52,809,000,
followed by United Arab Emirates with imports value of $13,177,000. The top five
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markets based on dollar value include Saudi Arabia, turkey and Oman. The total dollar
value of fan exports to these markets is $110,511,000. In terms of quantity the total market
is 14,659,640 units of fans. The biggest market with respect to quantity is Nigeria followed
by Bangladesh, United Arab Emirate, Turkey and Saudi Arabia. The top five players based
upon quantity and value are given in table below.
TABLE 13 TOP FIVE POTENTIAL EARLY MARKETS
COUNTRIES QUANTITY VALUE (000)

NIGERIA 6,754,565 $ 52809
BANGLADESH 4,127,458 $ 221
UAE 892,838 $ 13177
TURKEY 833,704 $ 7057
SAUDI ARABIA 528,933 $ 7655
OMAN 135,325 $ 3923
The average prices in these markets are comparable to the average prices of Pakistani fans.
The higher prices in these markets are justified by high quality image of our fans.
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11 Detailed Recommendations
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The industry has reached a maturity stage where there is evidence of a shake out in the
form of narrowing of medium scale manufacturers, whose share has been eaten up by large
scale manufacturers through filling of the product gaps in the market. Technological
advancements in the industry are little and are restricted to only large scale manufacturers
which are later copied by the other players in the industry. The support industry has been
over the years stagnant and there has been little development in technology used. Where as
the domestic demand is provided for the industry quiet adequately, the industry is not able
to fully tap the potential of the foreign export market. The industry as a whole can grow at
a much faster rate if it is directed towards exploiting the export potential. This however can
not be achieved without developing the support industry, which comprises of small and
medium enterprises and smaller manufacturers in the industry. Following
recommendations are made keeping in view that with development of vendor industry the
competitiveness of Pakistan fan manufacturers in terms of cost and quality will increase in
the foreign markets. To be able to do that the asymmetry of information existing in the
markets has to be removed, the following recommendations will help in achieving that.
11.1 Financial Reforms
Past studies have emphasized upon the need of finances increased as SMEs increase in
size. The role of financial institutions has so far been minimal in financing the growth of
this sector after its establishment. The role played by the government in promoting the
development of SMEs has been commendable over the past years and financial institutions
have been playing an important role with the government in disbursing the financial aid
available to government from the international agencies and government’s self allocated
funds for their development. The need for availability of funds increases as the small and
medium enterprise grow in size and operations. It is at this stage that the current financial
system lacks the role that is expected of it.
The small and medium enterprise currently is viewed as short term risky investments and
are thus neglected by the financial sector, whose major concentration has been on macro
enterprises. Whereas, the track record of SMEs prove them to be positive cash flow
generating enterprises and thus should be views as profitable long term investments.
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However, to fully benefit from the potential of this segment certain structural changes in
the system are required.
The focus of these changes are to benefit small and medium scale manufacturers; and
vendors of the fan industry. The large scale manufacturers currently have enjoy good
relationship with the banks and have little or no problems in securing finances for their
growth needs.
11.1.1 Change Of Lending Criteria For Small And Medium

Enterprises
The current collateral based lending criteria is the main hindrance, which the smaller
players in the industry face while securing finances for their growth. This problem is even
more critical in case of small scale manufacturers and vendors in the industry as compared
to medium scale manufacturers for the lack of available fixed assets to offer as collateral.
This hindrance can be over come by financing these business entities on the basis of cash
flows of these firms.
In current scenario banks and other financial institutions are unable to do so because of the
unavailability of expertise and resources. Expertise is required for assessing the viability of
the firm and business the firm is in. Development of expertise will require resources which
is another part where these institutions at the moment lack. However, the expected benefits
in the form of better loan portfolio and loan repayments of the financial institutions out
weigh the costs associated with providing such facilities. The ideal institution to perform
this service are the local banks such as Habib Bank, United Bank and Allied Banks etc.
The privatized banks at the moment are more constrained towards resources, however they
can also benefit by participating more actively in this sector.
From the demand side the constraints which limit the implementation of this system are the
lack of formal documentation of business transactions i.e. records of performance.
However, this demand side constraint can be overcome initially by more vigorous analysis
and scrutiny from the supply side before providing the finances and by educating the
manufacturers and vendors in keeping better quality records and the benefits which they
will drive from doing so.
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11.1.2 Role of Pakistan Electric Fan Manufacturer’s

Association
Financial institutions can also utilize the services of Pakistan Electric Fan Manufacturers
Association. The role of PEFMA will be that of an information providing agency regarding
the applicant and his business. It will not act as a guarantor but rather than provider of
information regarding business history of the applicant and the sharing information as to
industrial situation. Banks will thus be in a better position to forecast the cash flows of an
applicant with the help of information shared by PEFMA.
PEFMA can also play a more active role in which it should on its behalf secure finances
from the financial institutes and distribute them amongst its members. This role would
require PEFMA to act as guarantors for the members on whose behalf the loan would be
made. This though calls for PEFMA to take unnecessary risk but it will increase the
prestige of the organization amongst it members and other industrial organization.
11.1.3 Use Of Formal Contracts With Buyers

This recommendation is for the vendor segment of the industry. This segment is the least
developed segment and has little assets to offer for collateral, furthermore the financial
practices within this segment are also least developed. To assess the cash flows of this
segment financial institutions can use the formal contracts made between the members of
this segment and their buyers (fan manufacturers). This will enable the financing entity to
evaluate the profitability of the applicant. The role of the fan manufacturers will be to
vouch for the sales that the vendor has made to him over the period, which will be in the
form of documented proof.
This will also benefit the government as it will be better able to assess the sales of the
vendors and their tax returns.
11.1.4 Third Party Intermediation

Recognizing that financial institutes do not have available to them that much of resources
as to be able to do supervised lending, which will increase their costs. To avoid that banks
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can utilize the services of a consultant firm which will carry out financial analysis and
suggest them the viability of a loan proposal by applicant. Firms like Small and Medium
Enterprise Development Authority are already serving this purpose.
11.2 Improvement In Operations
11.2.1 Develop Vendors

The vendor industry has been unable to grow and develop with the development and
growth of the fan industry. This has caused the medium and large-scale manufacturers to
develop in-house facilities, which require heavy investment in general, purpose assets.
Because of this high degree of vertical integration the cost of manufacturing is high. In
order to lower the production costs it is recommended to develop the operation of the
vendors. The technical capabilities of vendors can be developed through following ways.
11.2.1.1 Role Of Large-Scale Manufacturers

Over the period large-scale manufacturers have invested heavily in technology
development. They have high-speed automated lathes, plastic molding machines, die
casting machines etc. These all are expensive imported machines. Because of this their cost
of production is high. The economic production quantity for these machines is higher than
their current production levels. So it is recommended that the large-scale manufacturers
who have the financial resources should import the machine and provide it to the vendors.
Hence catering to the needs of other industry players. The consolidation of orders by the
industry at the vendor’s level will cause faster pay back and lower per unit production cost.
Another reason for this step is that the machinery involved in manufacturing of fans is
general-purpose machinery, which can cater to the needs of other industries. For example
the plastic injection-molding machine can cater to the needs of plastic industry, shoe
manufacturers etc.
11.2.1.1.1 Incentive
· The government can offer import duty discounts on machines purchased for the
purpose of developing vendor, which come under the small and medium enterprises.
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· It will lower their cost of production, which is going to increase their profitability.
· This low-cost of production will allow Pakistani fan manufacturers to compete with the
low-cost fans produced by countries like China and India in the international markets.
· Long-term contracts with vendors will raise the barrier to entry for this industry, which
will stabilize the profitability of the manufacturers.
11.2.1.2 Role Of Medium/Small-Scale Manufacturers
Currently the medium and small-scale segment of the fan industry are using local
machinery, which is their weakness. This raises their costs because of low production
efficiencies and low quality output. The reason for not having imported automated
machines is the scarce financial resources of the individuals. Their low volumes and low
growth can not justify the individual ownership of the imported machinery. So in order to
have access to the latest technology, the medium and small-scale manufacturers should
confederate their financial resources and import machinery, which will cater to the needs
of all the players of this segment. This machinery will be installed at the common vendor
facility, which will be shared among the segment players contributing to the cost of
establishment.
11.2.1.2.1 Incentive
· This will give the small and medium-scale access to new technology, which will lower
their costs because of material savings without effecting quality. It will also increase
the production efficiency of the players.
· Long-term cordial relationship with vendors, which will improve their bargaining
power while negotiating prices with the vendor.
· They will be able to compete with the large-scale manufacturers currently dominating
the market with 60% market share.
· Their improved product range and quality as a result of this step will increase the
demand for their product and increase profitability.
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11.2.2 Government Support

When the option of the consolidation was given to the manufacturers while conducting the
survey two problems were raised regarding the recommended strategy. One was low level
of trust among the players and secondly the large-scale manufacturers mentioned the threat
of loosing competitive advantage. We think that if government is involved in this venture
then the problem of time-sharing and mistrust can be taken care of. In addition to this
government support will be required through import duty exemption on such machinery,
11.3 Promotion Of Exports
To completely tap the export potential and making fan industry directed towards exports
the following suggestions are recommended
11.3.1 Availability Of Information Regarding Export Markets

The domestic industrial knowledge of export markets is low. The government should
through its embassies in different countries or by Export Promotion Bureau should gather
information regarding these markets and make them available to the industry.
Players in the medium and large segment at the moment has little or no information
regarding the export markets and kind of product which can be sold into those markets.
These players are not resourceful enough as to gather this knowledge on their own.
Because of this unawareness we are loosing valuable foreign exchange.
11.3.2 Development Of Current Export Markets

Though Pakistan fan manufacturers cannot compete in some of the foreign markets but the
existing trading partners and number of other countries (which have similar climatic
conditions) hold tremendous potential for our fan industry. However, one reason this
potential cannot be realized is lack of proper marketing and promotional activities in those
markets. Export Promotion Bureau should play more active part here in promoting and
marketing this product abroad. This is currently being done through trade fairs held in
different countries.
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Fan manufacturers should also establish strong distribution channels abroad through
reputed and strong importers in that country, which will help them in building their brand
name and promote the domestic industry in the foreign markets. Currently the trade
channels used are small importers, which cannot promote the product except in certain
small areas.
11.4 Government Regulations
11.4.1 Fixed Tax Schemes

Though the fixed tax schemes are favored by the industry and government for the mere
reason of their being easy to execute and understandable. The tax scheme is in fact hurting
the industry at present as it is independent of the number of units produced by the
manufacturer and causes unnecessary burden on the manufacturer, especially the small
scale and vendors.
However, to implement the alternative to fixed tax structure the tax payer has to be
educated as to filing of the tax returns and the benefits that it will get from doing away
with the fixed tax rate. This can be done with the help of PEFMA.
11.4.2 Consistent Government Policies

Government should be consistent as to the duties levied on the material imported. The
medium scale manufacturers have suffered greatly because of this through the imports of
electric steel, the import duty on which has varied from 10% ad volarum. Government
policies have not been consistent on this import duty and it has been changing from time to
time. This practice has caused many of the medium scale manufacturers to stop using
electric sheet and switch to the use of metal sheet or drum sheet. Which has effected
negatively on the product quality of these manufacturers.
11.4.3 Rebates
Currently rebates offered to fan manufacturers is around 5% which is not much of an
incentive to promote exports. Government should increase the rebates offered so that there
should be much incentive for the fan manufacturers to explore the international markets.
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11.4.4 Reduction In Import Duties

Currently electric sheet, which is the major contributor towards quality of the fan is being
charged with 10% of import duty, this duty should be reduced so as to enable smaller
manufacturers to use this and improve the quality of the product.
The use of electric sheet will also benefit the government in terms of savings in electricity
consumption by consumer.
11.4.5 Incentive For Installation Of Modern Plants

Currently Pakistan fan manufacturers are at disadvantage regarding their prices in some
developed market of the world, where the can compete with fan manufacturers of Taiwan,
China and other countries. The highlighted reason for this is the manufacturing process or
technology employed currently, to be able to enter and compete in those markets
investments in technology and modern plants has to be made. Government should provide
incentives in form to rebates or other tax incentives to make the environment more
conducive for investments of such type.
11.5 Role of Pakistan Electric Fan Manufacturer’s Association
Apart from the role it should play in the above mentioned recommendations PEFMA
should actively work for improving the conditions of the industry.
Since, the current training institutes available in Gujrat and Gujranwala are not providing
the skills to the work force up to the satisfaction of manufacturers. And the need for proper
training is felt in the industry both in technical as well as managerial areas. PEFMA should
provide for the training need for the industry.
The managerial skills that were highlighted as essentially needed by the industry include
import export procedures and financial reporting. This will improve industry chances in
international markets as well as domestic financial market.
PEFMA should also complete the training institute funded by World Bank and Ministry of
Science and Technology which because of lack of funds is incomplete. The funds should
be collected from its member as was in the initial plan.
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Apart from this PEFMA should issue a news letter which should inform its members about
the conditions and practices in the local market as well as the opportunities in the foreign
market and the latest developments in the technology employed fan manufacturing around
the world.
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Analysis of Fan Industry of Pakistan Methodology
12 Methodology
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12.1 Objectives
This research study has been conducted with the purpose to achieve the following
objectives:
1. To analyze the dynamics of the fan industry, evaluate the value chain of
this industry and to study the market forces as to remove any asymmetry of
information prevailing in the following areas
· Labor force
· Technological
· Financial
· Government
2. To propose recommendation which will assist SMEDA to devise policies

so as to improve the performance of the industry.
12.2 Research Methodology
The salient features of research methodology used are as follows
12.2.1 Secondary Data

Various reports written on SMEs and Fan Industry were used to gather information. The
List of these publications are given in bibliography. The trade statistics were taken from
PC TAS software.
12.2.2 Primary Data

Primary data was gathered by conducting, in-depth interviews of fan manufacturers in the
industry, vendors of these manufacturers and their distributors. Data regarding the
dynamics of market elements operating upon the industry were gathered by interviewing
representatives of financial institutions and chairman of Pakistan Electric Fan
Manufacturers Association.
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To substantiate or verify the results of the interviews and to have better understanding of
the common practices of medium and small scale manufacturers in the industry, drop in
questionnaires were also used. The significance of these questionnaires was to validate the
general practices in the industry, which the researchers discovered during the research.
12.2.3 Research Technique

In-depth interviews were employed to collect primary data. The nature of the study
demanded a comprehensive analysis of fan industry. This required detailed information
about various aspects of the industrial practices. In order to achieve this purpose,
interviews seemed to be the most appropriate research technique.
12.2.4 Survey Type

Researcher had the choice between interviewer administered or self-administered
questionnaires. The decision to employ interviewer-administered questionnaire to gather
primary data was made due to the fact that most of the questions were open ended and
required explanation and guidance by the interviewer. Also the researcher had to probe the
responded to provide minute details of the industrial practices.
12.2.5 Sampling Plan

The three distinct segments in the industry are Large scale manufacturers, Medium scale
manufacturers and Small scale manufacturers. Their segmentation is based upon their
production capacity, with large scale manufacturers producing between 50,000 units to
200,000 units; medium scale manufacturers produce between 10,000 units to 50,000 units
whereas, the small scale manufacturers produce only 1,500 units to 10,000 units. The
sample of fan manufacturers was drawn with the help of Chairman and Secretary of
Pakistan Electric Fan Manufacturers from the list of registered firms, apart from the large
scale manufacturers which totaled 8, 30 to 50 players each were identified from the two
smaller segments. All these firms belonged to Gujrat and Gujranwala cities as the fan
manufacturing industry is concentrated in these two cities.
The selection of the firms for detailed interviews was done on the basis of convenience
sampling depending upon the accessibility of the manufacturers. Whereas for the drop in
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questionnaires the firms were selected from the identified list provided by the secretary of
PEFMA.
12.2.6 Target Population

12.2.6.1 Manufacturers
The manufacturers identified for the survey belonged to the cities of Gujrat and
Gujranwala, which are the industrial hubs. The total number of large scale manufacturers is
8, 5 belonging to Gujrat city and 3 belonging to Gujranwala. The number of operating
medium scale manufacturers is 50, whereas the total number of small scale manufactures
are 420.
12.2.6.2 Vendors
There are about 1,000 vendors supplying to the fan manufacturers located in Gujrat and
Gujranwala. Researchers were unable to obtain a comprehensive list of all the vendors as
this segment is the most fragmented, fan manufacturers helped to identify the various
vendors.
12.2.6.3 Distributors/Retailers
Researchers defined all the distributors/retailers in Lahore as the target population.
12.2.6.4 Financial Institution

Development financial institutions and other local commercial banks were defined as the
population.
12.2.7 Sampling Method

PEFMA Chairman was consulted so as to assist the researcher to segment the

manufactures in large, medium and small category. Based on his input 8 large, 50 medium
and 422 small players were identified. These firms were categorized based on annual
production of the fans. Firms producing more than 50,000 fans were categorized as large,
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firms manufacturing between 10,000-50,000 were categorized as medium the remaining

were considered as small scale manufacture. The respondents were selected based on
convenience.
12.2.7.2 Vendors
Due to time constraints study of all the vendors was not possible therefore the researcher
limited their study to vendors who were supplying parts which were important in terms of
cost to the fan manufacturers. Based on this criteria five parts were identified: guard, lock
nut, blades, fan base and steel rod (stalk). The researcher interviewed vendors identified by
the fan manufacturers.
Manufacturers identified their distributors in Lahore. Researcher interviewed these on the

bases of convenience.
12.2.7.4 Financial Institutions

Researcher selected banks, which have over the years extended loan facility to the fan
industry.
12.2.8 Sample Size

Five in-depth interviews were conducted in each of the three segments of the fan
manufacturers. In addition to the in-depth interviews, 20 questionnaires were also dropped
at medium scale manufacturers and small scale manufacturers.
12.2.8.2 Vendors
Two in-depth interviews of each of the selected parts were conducted.
Researchers conducted ten interviews of the distributors/retailers in Lahore.
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12.2.8.4 Financial Institutions
Three interviews of representatives of the financial institution were conducted.
12.2.9 Data Gathering Instrument

Separate questionnaires were designed in English for the different members of the value
chain. In case of the manufacturers, two questionnaires were designed. The rational for
designing two questionnaires was the fact that due to the scope of work and time constraint
only 15 manufacturers were interviewed. For these interviews detailed questionnaire in
English was designed. In order to substantiate the findings a shorter questionnaire in Urdu
was designed which focused on the key area of concern. This questionnaire was dropped at
the facility of twenty manufacturers.
12.2.10 Questionnaire Design

The questionnaire consisted mainly of open-ended questions. Background research in the
form of secondary data and detailed interview with Mr. Illayas Chaudary had already been
done, the findings were used to design questionnaire covering all the various areas of
interest. The rational for having pre-dominantly open-ended questions was to solicit replies
which reflected the operations of the individual companies. And it was felt that if close-
ended question were used than the richness of responses will be lost.
The questionnaire was pre-tested before data collection to indicate any potential problems.
In appendix A
12.3 Limitation
· The sample size for some segments of the industry is very small therefore the results
are not statistically significant. However, to overcome this limitation a separate
questionnaire in urdu was designed to be filled by small scale manufacturers and
medium scale manufacturers.
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· Due to lack of time and resources the sample for the different segments of fan industry
was drawn from the cities of Gujrat and Gujranwala, whereas the sample for
Distributors was drawn from Lahore.
· Lack of time and resources, the researchers relied on convenience sampling, hence the
results may not be representative of the population.
· Due to the length of questionnaire some bias may be created because of respondent’s
fatigue.
· The data on foreign markets was collected from PC TAS software, however, due to
unavailability of resources detailed product or market specifications could not be made
available. Therefore, the data on international trade only represents the volume of fans
of SIC 74314, which represents the fan with less than 125 watt motor.
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Analysis of Fan Industry of Pakistan Appendix A:
13 Appendix A: Questionnaire
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13.1 Detailed interview with Manufacturers and Vendors

I. GENERAL INFORMATION
1. Name of the firm
2. Address
3. Respondent Name
3.1. Designation
3.2. Qualification
3.3. Years on the post
3.4. Years of experience in the industry
4. Firm’s year of establishment

5. What percentage of your business is in fan? (As percentage of your firm’s total revenue)
6. Types of fans the firm makes and the percentage of capacity for each type.
Type of fan % age of capacity assigned
Ceiling fans
Pedestal fans
Exhaust fans
Bracket fans
Table fans
Industrial fans
Others
II. PRODUCTION
1.What percentage of your production is the customized products.
TYPE OF PRODUCT % AGE OF PRODUCTION
Customized
2. Please state the nature of customization you offer to your customers?
3. For how many months in a year do you produce fans?

Number of months
4. What percentage of the production is against advanced orders?

Percentage of advanced orders
5. Show the process flow diagram and ask for differences.
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6. Which of the following steps you follow for quality assurance and to what extent do you have ---for
checking each of the following? ( RATE ON THE SCALE OF 1 TO 5,”1” BEING VERY
UNIMPORTANT AND “5” BEING VERY IMPORTANT)
MEASURES
Stringent raw material specifications 1 2 3 4 5
Raw material quality checks at the facility 1 2 3 4 5
In process quality checks 1 2 3 4 5
End of the line quality checks 1 2 3 4 5
Others.(Please specify)
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
7. What is your lead-time in fulfilling orders from the customers (Distributors)?

Less than 1 month Less than 3 months Less than 6 months
8.Do you forecast and what is your forecasting period?

Do not forecast Between 6 and 9 months
Less than 3 months Between 3 and 6 months
Others (Please specify) Between 9 and 12 months
9. What percentage of your cost of goods sold id direct labor cost?

Direct labor cost as %age of COGS
10. What percentage of total installed machinery is locally manufactured?

TYPE %AGE
Locally manufactured
III. HUMAN RESOURCES

1. Total number of employees
GROUPS NO. OF PERMANENT NO. OF TEMPORARY
EMPLOYEES EMPLOYEES
Managerial/ Supervisory
Skilled labor
Unskilled labor
TOTAL
2. What pay structure do you follow for the following groups? And if more than one than please state the
%age of employees in that pay structure?
GROUPS PIECE RATE MONTHLY
Managerial /Supervisory
Skilled labor
Unskilled labor
3. What is the average wage rate of the following employee groups over last three years?
GROUPS 1998 1997 1996
Managerial/Supervisory
Skilled
Unskilled
YES NO
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4. Is your labor unionized?
If “Yes”, then please state the name of the union.
5. What fringe benefits do you offer to your employees?

BENEFITS MANAGERIAL/SUPERVISOR SKILLED LABOR UNSKILLED LABOR
Y
Medical
Transport
Bonus
Others (Please specify)
6.Please state the criteria for hiring.(Please use the following table to record the answer)
( RATE ON THE SCALE OF 1 TO 5,”1” BEING VERY UNIMPORTANT AND “5” BEING VERY
IMPORTANT)
CRITERIA MANAGERIAL SUPERVISORY SKILLED LABOR UNSKILLED

LABOR
Experience 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Age 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Education 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Residence 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Recommendations 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Others. (Please specify)
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
7. On what basis do you fire your employees

( RATE ON THE SCALE OF 1 TO 5,”1” BEING VERY UN IMPORTANT AND “5” BEING VERY
IMPORTANT)

LABOR
Lack of cooperation 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Poor performance 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Seasonality 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
8. In the past years what has been the turnover among your employees.
GROUPS TURNOVER (PAST YEARS)
1998 1995
Managerial/ Supervisory
Skilled labor
Unskilled labor
REASONS:
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IV. TRAINING/DEVELOPMENT
1. Are you satisfied with the level of technical skill of your work force?
( RATE ON THE SCALE OF 1 TO 5,1 BEING COMPLETELY DISSATISFIED AND 5 BEING
COMPLETELY SATISFIED)

LABOR
Managerial / Supervisory 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Skilled labor 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Unskilled labor 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
2. Do you have any training programs for your employees? YES NO

If yes How many from each of the following group have you sent for training?
TRAINING FOR NUMBER OF DURATION
EMPLOYEES (MONTHS)
Managerial/Supervisory
Skilled Workers
Unskilled Workers
3. Please name the training institutes you have used for the training of your workers and the level of your
satisfaction with their training. (RATE ON THE SCALE OF 1 TO 5,1 BEING COMPLETELY
DISSATISFIED AND 5 BEING COMPLETELY SATISFIED)
TRAINING INSTITUTES COMPLETELY COMPLETELY

SATISFIED UNSATISFIED
1 2 3 4 5
1 2 3 4 5
4.Do you think fan industry need training institutes? Yes No
5. What type of training should they provide and how important is it for your firm?
(RATE ON THE SCALE OF 1 TO 5,1 BEING COMPLETELY DISSATISFIED AND 5 BEING
COMPLETELY SATISFIED)
NATURE OF TRAINING
Technical training 1 2 3 4 5
Managerial training 1 2 3 4 5
Training in Designing 1 2 3 4 5
Marketing and selling activities for exports 1 2 3 4 5
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V. SALES
1. Please specify breakdown of your sales by customers
1998 TREND (INDIVIDUAL)
Customer % age 1997 1995
Direct to end user
Distributor
Dealer
Retailer
2. Please state following information.

NUMBER OF 1998 1997 1995
Sales man
Dealers
Company owned outlets
3. Do you sell your product under your own brand name? q YES q NO
Brand name:
Otherwise:
4. What is the pay structure for the sales force?

Salary Commission Salary plus commission
5. What are the selection criteria for the Dealers?

(Rate at the scale of 1 to 5, 1 being very important & 5 being least important)
CRITERIA VERY LEAST
IMPORTANT IMPORTANT
Coverage 1 2 3 4 5
Warehouse facility 1 2 3 4 5
Financial strength 1 2 3 4 5
6. What sorts of services do the Dealers/Distributors provides to the customers?
7. Does your company have sales contracts with any of the following?
INSTITUITIONS
Army q YES q NO
Hospitals/Health Institutes q YES q NO
Government departments q YES q NO
Others
q q
q q
8. What is your trade strategy in off-season?
9. In past five years how many new products did you introduced in the market?
Number of product
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10. Please give the description of the product and from where the need was generated.
TYPE OF PRODUCT NEED GENERATED
1.
2.
3.
4.
11. Please state the pricing policy followed by you.
12. How do you advertise (media selection) your product and who is your target market?
13. What is your advertising budget as a percentage of sales?
14. Do dealers and other members of trade take part in promotion and advertising?
q YES q NO
15. Please give the structure of trade channel.
16. Have you segmented the end user market? Please specify the segments
17. Please specify the products designed for different segments.
13-183
VI. EXPORTS
If you are in business of exporting your products to other countries please answer the following other wise go
to question Number 9
1. Are you exporting your products? q YES q NO
2. Please state, which countries are you exporting your products and the number of years that you are
exporting?
COUNTRIES No. OF YEARS VOLUMES
3. Are you exporting under your own brand name? q YES q NO
4. Why are you following this strategy?
5. Which mode or forum are you using for introducing your product in the foreign markets? If you used any
government agencies please name them and the efforts made by them
6. What difficulties did you face in entering these markets?
7. How would you like Government agencies to intervene and facilitate in the export process?
8. Have you in the past participated in any Trade Fairs? Was it of any help?
NAME OF THE TRADE FAIR YEAR COUNTRY
9. Do you believe that an export market exists for products? q YES q NO

Please state your reasons for each product category?
13-184
10. If the answer to the above question is YES. Please state the region(s) in the world where you believe that
you can export your product?
VII. Government Regulation

1. Please list 5 government regulation, which are beneficial for your industry?
2.Please list 5 government regulation, which are detrimental for your industry?
3. What do you consider the major threats to your business in the coming years?
4. In your opinion what should the government do to boost this industry?
5. Would you like to share resources with your competitors? q YES q NO
6.Please give details of a project, which will enhance the performance of your organization and you, would
like to carry it out for your organization if you had the resources.
13-185
V. OPERATIONS
Vendors
1. What are your criteria for vendor selection Please rate the following on a scale of 1 to 5 as to their
importance. (1 BEING LEAST IMPORTANT AND 5 BEING MOST IMPORTANT)
LEAST MOST
IMPORTANT IMPORTANT
Market reputation of the vendor. 1 2 3 4 5

Technical capability of the vendor. 1 2 3 4 5
Vendor firm size. 1 2 3 4 5
Past experience. 1 2 3 4 5
Other’s please specified. 1 2 3 4 5
1b. Of the total components used, how many are produced by vendors (out sourced) in
1998
1995
1c. Has there been any attempt in the past five years to develop expendabilities in q YES q NO
house for the components that have been out source?
Reasons
Of the following components used by your firm please state the following.
Component No. of Sub- Choices City Quality Level of
Contractor Available Control Satisfaction
Checks
1
2
3
4
How long have you been working with your sub-contractors.

Min Years ___________, Max Years ___________, Average Years ___________.
3. What percentage of your vendor’s output does your firm purchase?
MARK THE APPROPRIATE
More than 90% q
More than 75% q
More than 50% q
More than 25% q
4. Do you provide any of the following to your subcontractors?

Advance Payments q YES q NO
Organized Production q YES q NO
Provide Technology Assistance q YES q NO
Lend Machine Equipment q YES q NO
13-186
5. Write the steps followed in process flow and draw process flow diagram.
6. Please specify the kind of process followed.

TYPE OF PROCESS
Continuous q Yes q No
Batch q Yes q No
Job shop q Yes q No
Hybrid q Yes q No
VI Procurement
Supplier
1. What percentage of input do you buy from the following sources and are they readily available in required
quantity and quality.
TYPE OF INPUTS LOCATION FO AVAILABILTY IN AVAILABILTY IN

SOURCE QUANTITY QUALITY
REQUESTED REQUESTED
LOCAL ABROAD YES NO YES NO
Silver/Aluminum q q q q
Other Metals q q q q
Enamel Copper Wire q q q q
Plastic Components q q q q
Capacitor q q q q
Bearings q q q q
Paint q q q q
New Machinery q q q q
Second hand Machinery q q q q
Other inputs 1 q q q q
Specify
Other inputs 1 q q q q
Specify
2. Do you use electric sheets (ES) or drum sheets (DS)?

ES DS Both
VII FINANCE
1. Do you take loans for your business, please mention sources?
2. What is your estimated debt to equity structure?
13-187
3. Of the areas listed below, please state your levels of investments over the last 5 years and your future
investments plan
LAST 5 YEARS FUTURE
Capacity expansion
Product development
Advanced technology/equip
Marketing/sales
Backward integration
Training
Others
4. Please rate the extent of difficulties you face in obtaining credit from the following sources
Banks 1 2 3 4 5
DFI’s 1 2 3 4 5
Others (Others please specify)
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
5. What are your sources of equity?
6. What are your sources of debt?
13-188
13.2 Detailed questionnaire for distributors
1. What are your terms of sale?
TERMS
Cash q Yes q No
Installments q Yes q No Monthly
Credit q Yes q No Duration
2. What are the terms of procurement from your distributors?
TERMS
Cash q Yes q No
Installments q Yes q No Monthly
Credit q Yes q No Duration
3.What are the lead-time for order placed with the manufacturer?
Lead time (days)
4. Do you use financial institutes credit facility and for what purpose?
q Yes q No
5. Please specify the number of employees their designation and pay structure also.
Number of employees
Designation Pay structure Pay
6. Please give the capital investment required to startup this business of yours.
Capital investment required

Working capital required
Investment in Inventory
13-189
Marketing
1. What is your annual sales volume in rupees as well as in units?

Rupee Sales 1998 1997 1996
Unit Sales 1998 1997 1996
1a. Please give the product wise sales breakup?
Type of fan % age Sales this year % age Sales last year
Ceiling fan
Pedestal fan
Table fan
Bracket fan
Exhaust fan
2. What is your percentage margins on different types of fans?

TYPE OF FAN % AGE MARGIN
Ceiling fan
Pedestal fan
Table fan
Bracket fan
Exhaust fan
3. What pricing policy do you follow?

PRICING POLICY FOLLOWED BY YOU
Company fixed prices
Dealers fixed prices
Others
4. Are you contributing to Advertising and promotion with the manufacturer?

Your policy q Yes q No
5. Are you in a position to influence customer to buy a certain brand?

q Yes q No
6. Do you deal in imported products?

q Yes q No
13-190
7. What are the factors influencing purchase of the fan? (PLEASE RATE THE
FOLLOWING FACTORS ON A SCALE OF 1-5. 1 FOR LEAST IMPORTANT AND 5
FOR VERY IMPORTANT)
Quality 1 2 3 4 5
Brand 1 2 3 4 5
Durability 1 2 3 4 5
Service 1 2 3 4 5
Warranty 1 2 3 4 5
Others 1 2 3 4 5
1 2 3 4 5
8. Do customers ask for special features, which you are unable to provide? If yes please
mention those features.
q Yes q No
_________________________________________________________________________
_________________________________________________________________________
______________________________________________________________________
9. Reasons for purchase of local brands.
10. Reasons for purchase of imported brands.
11. Complaints regarding fans.

TYPES COMPLAINTS
13-191
13.3 Questionnaire for financial institutes

1. Please state your criteria for offering loans for Small and Medium Enterprises?
2. What type of Loans/Credit Facilities do you offer Small and Medium Enterprises?
CREDIT FACILITIES OFFERED %AGE

Working capital q Yes q No
Long term loans q Yes q No
Short term loans q Yes q No
Line of credit q Yes q No
q Yes q No
q Yes q No
3. In the small and medium enterprises, have you extended credit/loan facility to Fan Manufacturers?
q Yes q No
4. If the answer to the above question is “No”, please state the reasons for not extending these facilities to
them?
Reasons:
5. If “Yes”, please state the type of credit/loan facilities that you have extended to them?
CREDIT FACILITIES OFFERED %AGE
Working capital q Yes q No
Long term loans q Yes q No
Short term loans q Yes q No
Line of credit q Yes q No
q Yes q No
q Yes q No
6. Of your loan portfolio what percentage is given to fan manufacturers? %age
7. What are your criteria for lending to small and medium enterprises?
8. What risk category do fan manufacturers fall into?

q Below average q Average q Above average
9. Please tell us the default rate of fan manufacturers?

q Below average q Average q Above average
13-192
Analysis of Fan Industry of Pakistan Appendix B. Trade Statistics
14 Appendix B. Trade Statistics
14-193
FAN IMPORTS OF BANGLADESH QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
REPORTER COUNTRY 1993 1993 1994 1994 1994 1995 1995 1995 1996 1996 1996 1997 1997 1997
CHINA 2855 6 764000 3041 251 874000 33879 26 160000 16982 9 87000 11226 8
INDIA 3735 19 210000 8700 24 328000 15758 21 511000 22398 23 0
KOREA 0 62000 1000 62 0 0 25000 3000 8 0
SINGAPORE 1302 43 71000 4058 17 174000 13052 13 18000 366 49 51000 1232 41
THAILAND 1427 41 106000 3195 33 220000 10150 22 0 83000 4115000 20
TOTAL 9319 27 1213000 19994 19 1596000 72839 20 714000 42746 22 221000 4127458 23
FAN IMPORTS OF EGYPT QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
FRANCE 0 11000 1000 11 77000 2000 39 16000 13 1231 15000 1000 15
GERMANY 2000 21 78000 8000 10 32000 1000 32 36000 2000 18 66000 2000 33
INDIA 3030 18 50000 4000 13 232000 13780 17 225000 14800 15 0
ITALY 18000 5 9000 1000 9 121000 11000 11 122000 15000 8 247000 26000 10
JAPAN 55000 11 10 0 35000 1000 35 105000 11000 10 354000 50000 7
KOREA 0 93000 20000 5 0 0 96000 22000 4 0
SINGAPORE 1500 19 19000 663 29 158000 5620 28 301000 12061 25 885000 31639 28
USA 750 53 28000 810000 35 36000 43000 837 421000 3559 118 170000 1337 127
TOTAL 80280 12 288010 844663 16 691000 77400 27 1322000 80433 28 1737000 111976 15
14-195
FAN IMPORTS OF INDONESIA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 63359 28 3341000 15381 217 2651000 35980 74 1509000 55563 27 2904000 7876 369
FRANCE 5000 3 841000 41000 21 161000 17000 9 0 0 0 0
GERMANY 0 8 0 13000 1000 13 14000 1000 14 59000 2000 30
ITALY 0 0 0 22000 2000 11 21000 4000 5 154000 33000 5
JAPANESE 38000 20 670000 42000 16 571000 36000 16 764000 41000 19 296000 23000 13
KOREA 0 363000 16000 23 177000 15000 12 46000 3000 15 0
USA 613 109 9000 1000 9 32000 3000 11 52000 62 839 56000 4660 12
TOTAL 106972 17 5224008 115381 17 3627000 109980 21 2406000 104625 16 3469000 70536 16
FAN IMPORTS OF IRAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 36898 12 20000 2571 8 20000 2635 8 0 0 404000 30255 13
GERMANY 15000 20 177000 8000 22 3 0 21000 1000 21 17000 1000 17
ITALY 6000 34 52000 19000 3 0 0 0 0 86000 10000 9
USA 0 79 0 0 0 0 0 0 0
TOTAL 57898 22 249079 29571 15 20003 2635 8 21000 1000 21 507000 41255 13
14-196
FAN IMPORTS OF JORDAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 56462 24 1118000 32968 34 823000 11849 69 342000 30851 11 808000 13267 61
INDIA 0 26000 1160 22 49000 1710 29 53000 2070 26 0
ITALY 8000 7 31000 3000 10 85000 10000 9 729000 58000 13 103000 6000 17
JAPAN 17000 9 333000 36000 9 169000 16000 11 232000 25000 9 112000 16000 7
THAILAND 0 62000 1610 39 0 0 0 11000 223 49
USA 0 44000 2027 22 46000 3600 13 142000 218 651 10000 9 1111
TOTAL 81462 13 1614000 76765 23 1172000 43159 26 1498000 116139 15 1044000 35499 34
FAN IMPORTS OF KAZIKISTAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 169 24 246000 7250 34 22000 1430 15 0 0 0 0
GERMANY 2000 57 8 0 0 0 3 0 47000 6000 8
KOREA 4000 8 0 0 81000 8000 10 117000 6000 20 0
USA 0 0 0 0 0 0 0 114000 8770 13
TOTAL 6169 30 246008 7250 34 103000 9430 13 117003 6000 20 161000 14770 8
14-197
FAN IMPORTS OF KENYA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 6887 18 76000 20803 4 74000 5893 13 75000 6718 11 22000 1955 11
INDIA 232 26 27000 1577 17 54000 2999 18 53000 1955 27 0
SINGAPORE 92 43 66000 1777 37 165000 1815 91 15000 194 77 4000 276 14
USA 0 223 0 0 0 0 0 0 0
TOTAL 7211 29 169223 24157 19 293000 10707 40 143000 8867 19 26000 2231 13
FAN IMPORTS OF KUWAIT QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 53049 25 1685000 51300 33 135000 13560 10 245000 34170 7 68000 6089 11
HONGKONG 19036 36 607000 14250 43 227000 16880 13 675000 49620 14 89200 1424 63
INDIA 15125 18 180000 10130 18 479000 24672 19 399000 26788 15 0
ITALY 13000 10 170000 16000 11 106000 7000 15 383000 33000 12 46000 890 52
JAPAN 111000 12 1870000 141000 13 1611000 124000 13 923000 82000 11 1242000 125000 10
SINGAPORE 5569 46 83000 2027 41 11000 808 14 2000 122 16 2000 200 10
THAILAND 2304 35 81000 2114 38 16000 500 32 0 90000 2800 32
USA 10000 9 42000 440 95 28000 24000 1 0 0 87000 18000 5
TOTAL 229083 24 4718000 237261 28 2613000 211420 17 2627000 225700 12 1624200 154403 26
14-198
FAN IMPORTS OF LEBANON QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 15660 58 612000 14465 42 1439000 22210 65 1134000 49500 23 1967000 45916 43
HONGKONG 1575 32 113000 2918 39 0 0 3000000 25000 120 0 0
ITALY 34000 9 213000 22000 10 252000 21000 12 368000 36000 10 404000 45000 9
JAPANES 3000 11 59000 5000 12 114000 10000 11 116000 12000 10 107000 13000 8
THAILAND 2736 38 142000 3760 38 193000 5110 38 0 195000 6651 29
USA 2500 12 18000 9000 2 65000 79 823 36000 1970 18 103000 5467 19
TOTAL 59471 27 1157000 57143 28 2063000 58399 31 4654000 124470 15 2776000 116034 22
FAN IMPORTS OF LIBYA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 8251 11 8000 1085 7 88000 5632 16 48000 4500 11 0 0
GERMANY 8000 28 123000 4000 31 62000 1000 62 28000 1000 28 163000 4000 41
ITALY 9000 17 79000 3000 26 4000 1000 4 34000 2000 17 26000 4000 7
TOTAL 25251 19 210000 8085 21 154000 7632 27 110000 7500 19 189000 8000 24
14-199
FAN IMPORTS OF MALAYSIA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
GERMANY 0 84000 3000 28 32000 1000 32 210000 6000 35 124000 7000 18
HONGKONG 2700 24 69000 6374 11 289000 13228 22 82000 3485 24 45000 2200 20
JAPANESE 311000 9 1335000 109000 12 1487000 75000 20 541000 38000 14 691000 60000 12
SINGAPORE 45970 20 2358000 57858 41 1899000 42528 45 1991000 25937 77 2818000 37978 74
USA 2484 191 59000 494 119 2070 173 12 177000 2190 81 145000 4370 33
TOTAL 362154 18 3905000 176726 23 3709070 131929 26 3001000 75612 24 3823000 111548 21
FAN IMPORTS OF NEPAL QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 2500 10 99000 8460 12 213000 18594 11 128000 10250 12 410000 5008 82
INDIA 4855 24 180000 7603 24 241000 10390 23 186000 8514 22 0 0 0
TOTAL 7355 17 279000 16063 18 454000 28984 17 314000 18764 17 410000 5008 82
14-200
FAN IMPORTS OF NIGERIA QNTY PRICE VALUE QNTY PRICES VALUE QNTY PRICE VALUE QNTY PRICES VALUE QNTY PRICE
S S S
CHINA 53870 36 1329000 101750 13 1243000 34550 36 1227000 55360 22 52390000 6749000 8
GERMANY 0 0 0 0 0 148000 1000 148 27 1 27
INDIA 3153 23 54000 3200 17 281000 12212 23 136000 6200 22 0
SINGAPORE 20561 22 38000 4483 8 325000 4680 69 678000 12540 54 419000 5564 75
THAILAND 2913 45 52000 886 59 4000 160 25 0 0 0
TOTAL 80497 32 1473000 110319 24 1853000 51602 38 2189000 75100 33 52809027 6754565 37
FAN IMPORTS OF OMAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 13520 71 1011000 55238 18 135000 11795 11 107000 15399 7 61000 10725 6
HONGKONG 17848 17 405000 21926 18 222000 17426 13 490000 39002 13 672000 53600 13
INDIA 20424 19 570000 28045 20 523000 28734 18 524000 27890 19 0
JAPAN 66000 11 761000 66000 12 520000 41000 13 347000 32000 11 290000 26000 11
SINGAPORE 1767 40 66000 1673 39 66000 1020 65 0 0 0 0
USA 0 27000 5000 5 13000 1000 13 224000 187000 1 2900000 45000 64
TOTAL 119559 32 2840000 177882 19 1479000 100975 14 1692000 301291 12 3923000 135325 23
14-201
FAN IMPORTS OF OTH.ASIA NES QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICE VALUE QNTY PRICES VALUE QNTY PRICES
S
GERMANY 2000 35 61000 4000 15 21 0 188000 6000 31 44000 1000 44
ITALY 0 83000 13000 6 138000 11000 13 11000 2000 6 107000 15000 7
JAPAN 79000 12 660000 36000 18 934000 48000 19 2076000 83000 25 768000 33000 23
SINGAPORE 3223 72 359000 2329 154 227000 5651000 40 20000 1537 13 4000 39 103
THAILAND 39457 5 111000 7694 14 226000 4225900 53 0 0 0
USA 3072 240 1010000 9397 107 559000 11550000 48 601000 19110 31 1867000 183700 10
CHINA 15359 14 8000 820 10 0 0 0 0 0 0
TOTAL 142111 28 2292000 73240 13 2084021 21485900 35 2896000 111647 21 2790000 232739 21
FAN IMPORTS OF QATAR QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 12019 5 39000 4906 8 66000 5941 11 91000 8698 10 24000 2513 10
HONGKONG 6442 29 157000 5860 27 0 0 18000 950 19 30000 1585 19
JAPAN 29000 9 223000 23000 10 194000 20000 10 251000 27000 9 176000 19000 9
SINGAPORE 1334 49 51000 1078 47 0 0 0 0 0 0
USA 890 13 130000 21000 6 6000 4000 2 61000 7695 8 24000 1856 13
TOTAL 49685 21 600000 55844 20 266000 29941 10 421000 44343 12 254000 24954 13
14-202
FAN IMPORTS OF QATAR QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 12019 5 39000 4906 8 66000 5941 11 91000 8698 10 24000 2513 10
HONGKONG 6442 29 157000 5860 27 0 0 18000 950 19 30000 1585 19
JAPAN 29000 9 223000 23000 10 194000 20000 10 251000 27000 9 176000 19000 9
SINGAPORE 1334 49 51000 1078 47 0 0 0 0 0 0
USA 89 135 13000 210 62 60000 4000 15 61000 7695 8 24000 1856 13
TOTAL 48884 23 483000 35054 23 320000 29941 12 421000 44343 12 254000 24954 13
FAN IMPORTS OF RUSSIAN FED QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
FRANCE 2000 13 22000 2000 11 163000 19000 9 805000 78000 10 105000 10000 11
GERMANY 27000 5 644000 39000 17 205000 17000 12 788000 103000 8 773000 89000 9
INDIA 0 69 0 0 0 0 0 0
ITALY 103000 14 16000 1000 16 462000 34000 14 613000 50000 12 183000 12000 15
JAPAN 2000 27 11 0 14 0 5 0 2 0
KOREA 7000 7 29000 4000 7 99000 10000 10 1290000 77000 17 0
SINGAPORE 1180 30 60 13834 0 99000 3171 31 32000 1388 23 16000 717 22
USA 6000 9 9000 800 11 0 0 82000 9700 8 16000 800 20
TOTAL 148180 15 720140 60634 12 1028014 83171 15 3610005 319088 13 1093002 112517 15
14-203
FAN IMPORTS OF S.AFR.CUS.UN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 68770 23 2639000 96790 27 3760000 144110 26 3026000 63612 48 1594000 21610 74
FRANCE 4000 12 112 0 14000 1000 14 0 0 0 0
GERMANY 2000 28 59000 2000 30 128000 3000 43 58000 2000 29 170000 3000 57
HONGKONG 810 36 99000 4742 21 0 0 0 0 0 0
INDIA 0 111000 5600 20 214000 9884 22 233000 9613 24 0
ITALY 6000 12 436000 47000 9 716000 75000 10 737000 58000 13 603000 63000 10
JAPAN 26000 17 174000 11000 16 438000 24000 18 546000 31000 18 109000 6000 18
SINGAPORE 0 0 0 49000 4700 10 87000 1054 83 20000 672 30
TOTAL 107580 21 3518112 167132 20 5319000 261694 20 4687000 165279 36 2496000 94282 38
14-204
FAN IMPORTS OF SAUDI ARBIA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 53413 243 1665500 330820 50 2828600 618770 46 1212000 323300 37 4023000 342350 12
0 0 0
FRANCE 22000 5 51000 5000 10 132000 13000 10 27000 2000 14 74000 6000 12
GERMANY 1000 17 411000 21000 20 97000 4000 24 113000 3000 38 2369000 54000 44
HONGKONG 63602 41 2387000 63009 38 446000 28597 16 149000 9066 16 178000 10590 17
INDIA 12599 17 173000 8244 21 363000 24423 15 385000 21920 18 0
ITALY 10500 39 64000 15000 4 161000 25000 6 112000 19000 6 99000 15000 7
JAPAN 561000 9 5458000 600000 9 4910000 476000 10 4245000 456000 9 2962000 371000 8
MALAYSIA 510 55 27000 940 29 1446000 25342 57 549000 17768 31 0
SINGAPORE 17550 36 492000 21884 22 1201000 53226 23 2465000 60720 41 3240000 58960 55
THAILAND 13070 40 697000 16591 42 41000 9100 5 0 300000 11763 26
USA 16100 74 794000 77900 10 512000 7831 65 724000 1958 370 876000 61620 14
TOTAL 694931 29 1009200 803568 22 9080000 649519 19 8629000 586432 23 7655000 528933 17
0
14-205
FAN IMPORTS OF SRILANKA QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 22845 11 330000 20718 16 560000 55121 10 170000 16257 10 229000 19291 12
GERMANY 1000 19 43 0 0 0 3 0 88000 2000 44
HONGKONG 1477 35 127000 6473 20 5000 150 33 30000 2108 14 142000 10283 14
INDIA 5969 20 206000 10625 19 303000 19632 15 487000 27368 18 0
SINGAPORE 15002 38 483000 13599 36 405000 17744 23 448000 14323 31 874000 24092 36
THAILAND 8608 31 207000 5969 35 310000 13409 23 0 346000 13941 25
TOTAL 54901 155 1353043 57384 25 1583000 106056 21 1135003 60056 18 1679000 69607 26
FAN IMPORTS OF SUDAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 43457 11 351000 37893 9 104000 9735 11 147000 13761 11 107000 10010 11
INDIA 4700 20 77000 5100 15 34000 2164 16 61000 4064 15 0
SINGAPORE 0 0 0 0 0 0 0 62 0
TOTAL 48157 15 428000 42993 12 138000 11899 13 208000 17825 107062 10010 11
14-206
FAN IMPORTS OF SYRIA.A.R QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
FRANCE 0 0 51000 4000 13 0 0 0 0 0 0
ITALY 23000 43 161 18 9 330000 59000 6 457000 59000 8 428000 77000 6
JAPAN 0 0 166 7 24 0 0 0 0 162000 16000 10
TOTAL 23000 43 51327 4025 15 330000 59000 6 457000 59000 8 590000 93000 8
FAN IMPORTS OF TURKEY QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 34630 22 539000 43127 12 338000 44232 8 289000 32806 9 1782000 40704 44
FRANCE 0 57000 3400 17 0 0 104000 1000 104 4 0
GERMANY 6000 10 257000 22000 12 716000 41000 17 1135000 109000 10 2680000 461000 6
ITALY 78000 8 462000 55000 8 1128000 98000 12 1587000 136000 12 1870000 174000 11
USA 640 70 9000 1000 9 135000 11300 12 90000 1330 68 721000 158000 5
TOTAL 119270 13 1324000 124527 12 2317000 194532 12 3205000 280136 10 7053004 833704 16
14-207
FAN IMPORTS OF UKRAINE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
FRANCE 0 0 0 0 0 69000 5000 14 9000 1000 9
GERMANY 1000 33 98000 8000 12 42000 2000 21 89000 12000 7 151000 19000 8
ITALY 0 0 0 1 0 14000 1000 14 88000 8000 11
USA 492000 65 81000 208000 0 0 0 0 0 0 0
TOTAL 493000 33 179000 216000 12 42001 2000 21 172000 18000 12 248000 28000 9
14-208
FAN IMPORTS OF UAE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 300720 40 9848000 258490 38 5792000 121950 47 8818000 631520 14 6358000 423360 15
FRANCE 0 191000 19000 10 96000 5000 19 96000 5000 19 2 0
GERMANY 9000 4 43000 2000 22 99000 4000 25 60000 2000 30 72000 11000 7
HONGKONG 35879 24 653000 24463 27 300000 22235 13 1311000 34144 38 675000 48600 14
INDIA 29001 56 909000 48858 19 1514000 140570 11 1060000 58687 18 0
ITALY 25000 11 923000 92000 10 1843000 109000 17 1534000 124000 12 1446000 140000 10
JAPAN 246000 11 2730000 244000 11 2224000 194000 11 2170000 217000 10 1836000 215000 9
MALYSIA 0 9000 280 32 0 0 51000 1700 30 0
SINGAPORE 6422 20 83000 1983 42 22000 2086 11 59000 2802 21 246000 19662 13
THAILAND 9330 35 227000 7878 29 361000 9963 36 0 366000 11980 31
USA 40400 11 750000 9440 79 267000 540 494 526000 866 607 2158000 23236 93
TOTAL 701752 23 1636600 708392 24 1251800 609344 21 1568500 1077719 21 1315700 892838 14
0 0 0 2
FAN IMPORTS OF UZBEKISTAN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 4906 16 3000 450 7 0 0 0 0 0 0 0
KOREA 0 13000 1083 12 5000 385 13 102000 8500 12 0 0 0
TOTAL 4906 16 16000 1533 9 5000 385 102000 8500 0 0 0
14-209
FAN IMPORTS OF YEMEN QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES VALUE QNTY PRICES
CHINA 21293 9 163000 15267 11 73000 7927 9 75000 7427 10 44000 2755 16
GERMANY 0 0 0 14000 1000 14 0 0 61000 1000 61
INDIA 35904 20 701000 38444 18 878000 53971 16 391000 22100 18 0
ITALY 0 0 0 0 0 0 0 128000 2000 64
JAPAN 10000 10 0 0 7000 1000 7 30000 4000 8 0 0
TOTAL 67197 13 864000 53711 14 972000 63898 12 496000 33527 12 233000 5755 16
14-210
Analysis of Fan Industry of Pakistan Appendix C:
15 Appendix C: Interviews
15-211
15.1 Manufacturers
Mr. Muhammad Illyas – GFC fans
The important findings of the interview conducted with Mr. Muhammad Ilyas are as
follows.
Exports
Regarding the current situation, which appeared after the nuclear explosion done on 28th of
May 1998, there were sanctions imposed by foreign governments on Pakistan. Under these
sanctions the loan facility was terminated and the future investment in Pakistan was
stopped. These steps had a negative impact on the foreign exchange reserves, which were
already at the record low level. So in order to cater for this situation the Government of
Pakistan announced took some immediate as well as some long-term steps. The short-term
steps were freezing of the foreign exchange accounts and among the long-term steps one
was the establishment of small and Medium Enterprise Development Authority (SMEDA).
The main agenda for SMEDA was to first highlight small and medium enterprises, which
have the export potential and can generate the valuable foreign exchange for the country.
In second phase it will help the Government of Pakistan to formulate a strategy for the
future uplift of these small enterprises. So as the focus of our study was inclined towards
the export potential that existed in this industry we started our interview by asking the view
of Mr. Illyas Chaudary the Chief Executive Officer of General Fan Corporation. Mr. Illyas
Chaudary is the biggest fan exporter, exporting under the GFC brand name. He has one the
award for the biggest exporter for 1998. He told that he is currently exporting fans to
Bangladesh, Yemen, Qatar, Iraq, Saudi Arabia, Dubai and other Middle East countries. He
said in these markets there is demand for the type of fans we manufacture in Pakistan. The
market is mainly for Table fan. Among different sizes the 56-inch table fan is popular. He
said that Dubai is the hub from where fans are exported to other Middle East countries as
well as Europe. As we told him that there is a big European market for fans, why you have
not yet tapped this market? In response to this question Mr. Illyas said that we can sell our
product or otherwise our product is suitable to those countries which have similar
socioeconomic and climatic conditions. In European market the climatic conditions are
15-212
very much different and hence the type of fans required are much different from what we
produce. Mr. Illyas said that presently our objective is to sell the over-capacity that exists
and optimally utilize our installed capacity. So the markets we have tapped readily for our
type of fans. We are not producing any customized products for these markets.
In response to this we asked him why not you design products specifically for these
markets? The answer was because of China. China, Korea, Thailand and now India have
cost advantage over us. They are flooding the market with disposable kind of fans, which
are selling for $10 - $12 (FOB). Where as we are supplying fans for $23 - $24. The last
shipment, which we sent to Bangladesh, was $20. Why our costs are high? The reason
that our costs are high is that we do not have such high volumes on which these countries
are producing fans. There the vendor industry is very well developed and the fan
manufacturers are just the assemblers, which are assembling and packing large volumes,
which we can not currently imagine. In Pakistan the fan spare parts manufacturers are very
fragmented they have low capacity. No vendor can presently fulfill the demand of the big
players. They lack technology. They lack technical know how. They presently neither have
the resources or the skills to work on the new technology.
We here asked him why don’t you develop the Spare parts manufacturers as done by
Japanese? In response to this he said that no individual has muscle to do this. Here a
collaborative effort might help but again you know we lack trust and confidence. If one has
excess to new technology he is not willing to share it with others. If we develop one of our
spare parts manufacturer today, tomorrow he will start supplying to our competitors and
the competitive advantage will be lost. You can not have patent protection here in
Pakistan. That is the reason that who so ever among us afford to have technology he
imports the machine and start producing in-house. Because of these low volumes our costs
are high and we do not enjoy economies of scale that are enjoyed by our international
competitors, which are producing ten times the volumes which we are producing. Are the
exports of fans growing and what is the growth rate? Yes the exports of fans have
increased over the past few years. It has more than doubled. This year GFC has exported
30-40 thousand fans and it is the beginning of the season. The competition from local
players is also increasing. The small size manufacturers, which are producing low quality
15-213
fans are cutting prices and damaging the quality image what GFC and other big players
have established over the years.
How is Pakistani Fan perceived in the International Market? Till now it is perceived
as a high quality long lasting fan. There are no complaints yet from our foreign buyers. But
we face a threat from these small players, which are selling low price, low quality and
unbranded products. This can hurt our image and the customer once lost will be hard to
replace. Do you have plans to tap the other international markets like Europe and
United States of America? Not now but might be 4-5 years from now we may have a
product for these markets. As I told you during the discussion that when we went to these
markets it was a well thought plan. We had under utilized capacity and to fulfill this we
went abroad taking samples of our product and getting orders.
Why we not cost competitive? The reasons for this are as follows:
Access to cheap raw material
Economies of scale
Cheap labor and state control
How you were able to tap this International market? It was completely an individual
effort. I still remember my trip to Dubai in 1993, when I took 10 Ceiling fans under my
personal baggage. I took these fans to the fan distributors in Dubai and asked them to just
place my product in their shops. Yes I knew one of the Pakistani distributors who were
dealing in other Pakistani products. It was very kind of him that he accepted the offer. Next
trip I again took some of our product and this way we were able to develop a demand for
our market. Now thanks to Allah all mighty that we have developed a market and
exporting a great number which at that time I never expected. Does the Government of
Pakistan in any way help you to tap the export potential? Not really. But one thing that
government did was the exemption of Pakistan Standard of Industry (PSI) for fan exports.
This was the biggest hindrance in exports of fans. What steps would you recommend
for Pakistan Government that will help fan manufacturers to increase their exports?
Currently the export rebate given to us is very low this should be increased.
15-214
Reduce duties on imported machines, which can improve our processes and make us cost
competitive in the international markets.
Make the government machinery efficient, so that we can get our refunds early and without
paying additional fees.
Open up institutes from where we can get trained labor that can work on the new high tech
machines.
Which markets you have plan to go for in near future? In near future we have plans to
go for markets like:
Kenya
Sudan
Tanzania
Bhutan
Gulf
How do you see the growth of the local market? The variables that we see are Growth of
WAPDA, village electrification, cash crops and growth of households. Currently the
economy is growing at 6% and the fan industry is growing at 10%. Our pie is increasing
but at the expense of small and medium size players. Why at the expense of medium size
players? The reason for this is that initially these small players were catering for low-end
market. But as the big players saw the demand for this segment growing because of the
decreasing purchasing power of the end consumer, almost all the big players have started
manufacturing product for this low-end market with new brand names. This strategic move
has increased the share of large players and has wiped out the medium size fan
manufacturer from the market. We have started selling this product under the brand name
of Wahid Fans. However, as the purchasing power of the customer is decreasing and with
rising prices of cement building a house is very expensive and this will have a sever impact
on our growth. We do not have a big replacement market. As you know that fans have long
life so once installed they need minor repairs and these also not very frequent. The average
age of a ceiling fan is 30 years and that of table fan is 10-15 years. So you need fan only
when you build a new house.
15-215
What are the key success factors?
The key success factors are same as that of other industries
Broad product range catering to the needs of your customer
Design innovation
Technology
We now are introducing on average five new models every year. This is why we have to
revise our catalog every six months. We this year have introduced remote control fans.
Fans with low wattage that will give tremendous savings to our customer. We are also
promoting this attribute in our advertisements also, so as to increase awareness among the
end users. Some of our new designs are the copy of the imported fans like plastic body
pedestal and louver fans.
Capacity expansion
As I have told you that the market is roughly growing at 10% so we have set a target of
10% capacity expansion every year. At present we are producing some where around 15,00
fans every day during the peak season that is from March to July and then off season this
goes down to a level of less than 1,000 fans a day. We work for 10 months and the
remaining two months the facility is shut down for maintenance and renovation.
How frequently you introduce new machinery and on what basis the decision is
made? It is not very frequent but as soon as we see that we can utilize the new machine we
import it or purchase from the second hand market. It is mainly demand driven. We do not
have any kind of capital budgeting techniques. The reason is the lack of knowledge as well
as the availability of statistical data. Material savings are also one criterion on the basis of
which we plan the purchase of new machinery. Electric sheet is the major component of
the raw material cost. By having this automatic stamping press we are saving 20
% on material. In making one fan we almost use Rs 180 worth of electric sheet. So by
using automatic stamping press we are making a saving of Rs.30 which helped us cover
the costs in less than one year. Another is the pressure from the competition. The strong
competition drives us to the acquisition of new technology.
15-216
What are the economic production quantities for your automatic machines like
Plastic molding and automatic stamping press? We do not have any cost accounting or
any mechanism to judge the costs, so we do not have any idea of this. But what I care that
the machine should keep on running for 8 hours a day, 6 days a week and 256 days a year.
If it is stopped or there is no order to produce that is the time I get worried because this
will increase the payback period.
How many new players have come up during last years?
Players keep on coming and old ones going but in last few years very few have emerged. I
know that there are almost 50 players who have not started production this year. So you
can say that the growth is negative. The big players as mentioned earlier because of the
new strategy follow this.
What is the concentration ratio and how the share is divided among the big giants?
It is roughly 60-40. Sixty percent is with the big giants and 40 percent with the
small/medium players. Among the big players it is almost equally distributed.
Why are you vertically integrated?
The vendors lack the technological capabilities and the resources to provide us with the
services that the present market requires. We are trying to cut our costs down by
employing technologically advanced equipment, which saves us the costs on wastage of
material. The technological capability of vendor industry is not yet to that level where they
can provide us with this kind of service.
15.2 Vendors
One interview of a fan guard manufacturer is reported as under.
Capital investment required
In response to our question regarding the capital investment required to setup this type of
facility. The owner responded that it takes an outlay of five to seven Lac to have this type
of facility. He further mentioned that this low capital outlay is because of the lease and
rental facility available to them. He said that most of the vendor premises are on rental
basis, which not only reduces the initial investment for them but also gives them higher
15-217
flexibility. Another reason for the low initial outlay is the availability of second hand local
machinery. He gave an example that a new lathe machine will cost you about sixty
thousand rupees, where as a second hand machine will cost you roughly thirty thousand
rupees. These practices are common among the small players. Where as the big players do
have there own plant and equipment, which increases the capital requirement for them.
Then we asked that do you have any other advantages or disadvantages because of this low
capital requirements. He mentioned that because of not having our own factory we have a
problem in getting loans as we do not fulfill the collateral requirement of the banks or
other financial institutes. However it reduces the switching cost.
Skill level of the labor
He said that it is a seasonal business, we work for maximum of six months when the
season is good and the demand for fans is high. Because of the seasonal nature of the
business we have labor contracts with the labor contractor called as the “THEKIDAR” for
the season. Every year we revise the contract terms, which mainly constitutes the revision
in the piece rate. This piece rate mode of payment also gives the product efficiencies. We
asked him that don’t you face the problem of dealing every season with new people. He
said that usually the same contractor comes back. But as we don not have to deal directly
with the labor, so we don’t really care who is working. We have to make payments on the
basis of parts manufactured and when we receive the daily production we give them their
payments. The piece rates are set according to the industry practices and the nature of the
part. For more complex parts the piece rate is higher. The average piece rate is Rs 7 to 8.
We also asked him about the availability of the skilled labor. He responded to this question
saying that Gujrat is an industrial area and the labor supply is in excess to the demand. He
also said that the seasonal demand for the labor further reduces this problem, as our peak
season does not coincide with the peak working seasons of other businesses. Also out of
the total strength of 15 employees the skilled labor requirement is just five people.
Design And Product Development
Do you design a product and then sell it to the manufacturer?
The respondent said that the manufacturer gives all-spare parts designs. We do not have
any input in the designing of the product. This is the case with all the spare parts suppliers
15-218
(vendors). In case of big players like G.F.C, Royal and Pak Fan the material used in
manufacturing is also supplied by the manufacturers and they pay us for the machine hours
used in the manufacturing of their order.
How you get the orders?
He said that we first contact the manufacturers personally by going to their facility. Take
the design from them and the produce two three parts on those specifications. These parts
are then taken to their office and given as a sample. If they have a need for that part then
they place order with us. There are no long-term selling contracts with the manufacturers.
The order is finalized mainly on the basis of the price quoted for the parts. It is highly price
sensitive and the bargaining power also lies with the buyer because of the large number of
spare parts vendors available.
The lead-time to fulfill an order?
As the vendors don’t have storage facility and also the quality of parts will go down if
stored. The reason, the quality will be effected is that these are unpainted metal parts which
get rusted if stored in the warehouse. So we supply the daily volumes to the respective
manufacturers where they are painted and used in the assembly. It is closer to the just in
time delivery concept.
Sales
Through out the value chain the payments are on the credit basis. We do face a lot of
problems in collection of the receivables, especially from small players. This credit
collection increases the working capital requirements in our business. It is also one of the
reasons of having highly fragmented vendors industry as it shares the burden of the
working capital requirement. Long-term relation do play a role in the efficient recovery or
at least the guarantee that you will receive your dues. In our price the delivery to the
buyer’s facility is included. But as we are located close to our customers, who are the fan
manufacturers so we do not have high transportation costs.
Raw material supply
Most of the raw material needed is locally purchased. The problem is with the consistent
specs. For example in case of steel wire the gage keeps on changing. It sometimes happen
15-219
that you do not get same gage even in one role of the wire. Because of this problem some
of vendors have collaborated and installed machinery to size the wire according to their
needs.
How do you check the quality of the raw material?
In order to check the quality of the incoming raw material very few of us have the relevant
equipment and facilities. The quality checks are mostly subjective. However the bigger
players do have the quality test facilities and if they reject our products we do collect them
and if rework is possible do it otherwise it is waste. We do have almost the same kind of
machinery like chrome plating equipment.
Loan facility
We normally do not use the credit facility given by banks. The reason for not using this
facility is the high interest rates and also we are not able to provide the required collateral
as our inventory is in cycle and we do not have the ownership of the finished goods. They
lie with the manufacturers. Mostly our plant is on rental basis so we are unable to give it to
the banks as collateral. We might start taking loans if the interest rate is low. Our profits
are lower than 10% so giving interest rate of 23% is almost impossible.
Government Regulations
Talking about the problems or the effect of government regulation on their industry, one of
the respondents mentioned that the tax return submission is a very complex procedure and
regarding the education of our businessmen it is very difficult to file a tax return. As we
face problem in filing the return so it is the point we get blackmailed by the government
officials and have to pay fees for it. He said that we are willing to pay taxes but it would be
better if it is a one-window operation. Presently we are paying taxes in number of ways
like old age benefit, social security, employee education fund, labor union fees etc.
Currently we are coming under the fix tax bracket and it is exercised on the basis of the
number of lathe machine. Now some of our parts have very low profit margins so the tax
should be on the basis of the value of the part produced, which will help us.
15-220
We here asked them why don’t you hire an accountant. The reply was that we don’t afford
to pay thee expenses of an accountant. And the availability of the capable accountants is
also low.
We are currently giving double taxes in case if we use imported material. As we have to
pay sales tax on the purchased equipment and the sellers don’t provide us with the invoice
against which we can adjust the sales taxes paid by us so we are facing the problem of
double taxation. Even if we do get the invoices the procedures involved in getting the sales
tax refund is very hectic.
Almost all the business is on credit basis and the recovery of credit is very difficult. There
is no law, which protect you against this scenario. Even if we file a case in the court the
time and fees involved is very high. In some cases the client pay us through cheques but
they get bounced. We want that there should be some penalty on the creditor if the bank
dishonors his cheque.
We do face a problem in summers, which is our peak season because of load shedding.
Another problem from WAPDA is the over billing. Some people don’t pay their bills and
those who are paying have to share the burden. .
15-221
Analysis of Fan Industry of Pakistan Bibliography
16 Bibliography
16-223
1 SMALL BUSINESS IN THE THIRD WORLD

HARPER, MALCON.
2 SMALL SCALE INDUSTRIES IN ASIAN ECONOMIC DEVELOPMENT
NAYA, SEIJI. ASIAN DEVELOPMENT BANK. 1984
3 SLOW COLONIZATION OF SMALL INDUSTRIAL ESTATES IN PUNJAB
HABIB-UR- RAHMAN
4 STUDY ON SMALL SCALE INDUSTRIES IN PAKISTAN: ANALYSIS AND OVERVIEW
INDUSTRIAL DEVELOPMENT BANK. 1985
5 CHANGES IN THE INDUSTRIAL STRUCTURE AND THE ROLE OF SMES IN ASIAN
COUNTRIES
UNIVERSITY OF PHILIPPINES
6 A SITUATIONAL ANALYSIS OF SMALL INDUSTRY ASSOCIATIONS IN INDIA
MATHEW, P.M.; SUKUMARAN NAIR, M.K.; KRUSCH, P.A.
7 SMALL BUSINESS MANAGEMENT
BROOM, H.N.; LONGNECKER, JUSTIN G
8 WHAT YOU SHOULD KNOW ABOUT SMALL BUSINESS MARKETING
FRAM EUGENE H.
9 EMPLOYMENT AND DEVELOPMENT OF SMALL ENTERPRISES
WORLD BANK
10 A GUIDE TO SMALL BUSINESS MANAGEMENT
HOLLINGSWORTH, A. THOMAS; HAND, HERBERT H.
11 SMALL VENTURES: TACTICS AND STRATEGIES
BOSTON: HARVARD BUSINESS SCHOOL 1980
12 MANAGING THE SMALL BUSINESS
KLINE, JOHN B.; STEGALL, DONALD P.; STEINMETZ, LAWRENCE L
13 SURVEY OF SMALL AND HOUSEHOLD MANUFACTURING INDUSTRIES
FEDERAL BUREAU OF STATISTICS 1976-77
14 SMALL AND MEDIUM SCALE MANUFACTURING ESTABLISHMENTS IN ASEAN
COUNTRIES
HIEMENZ, ULRICH ADB. 1983
15 GROWING CONCERNS: BUILDING AND MANAGING THE SMALLER BUSINESS
GUMPERT, DAVID E
16 THE ROLE OF SMALL SCALE INDUSTRY IN ECONOMY AND GOVERNMENT
INCENTIVES
MALIK MUHAMMAD HUSSAIN
16-224
17 SMALL BUSINESS: PRODUCTION AND OPERATION MANAGEMENT

DAVID CLARK, K
18 SMALL MANUFACTURING ENTERPRISES: A COMAPRITIVE ANALYSIS OF INDIA
AND OTHER ECONOMIES
LITTLE, IAN M.D; MAZUMDAR, DIPAK: PAGE JOHN
19 SMALL SCALE ENTERPRISES IN INDUSTRIAL DEVELOPMENT: THE INDIAN
EXPERIENCE
SURIE, K.B
20 SMALL BUSINESS SURVIVAL
BENNETT, ROGER
21 THE ROLE OF SMALL SCALE INDUSTRIES IN THE ECONOMIC DEVELOPMENT OF
LESS DEVELOPED COUNTRIES
SAEED AKHTAR AWAN
22 EXPORTS FROM SMES IN DEVELOPING COUNTRIES
CAVUSGIL, S. TAMER
23 SME SUPPORT POLICIES IN JAPAN
ITOH, MOTOSHIGE; URATA, SHUJIRO
24 GETTING STARTED IN EXPORT
UNCTAD GATT - ITC 1995
25 PROMOTION OF SMALL SCALE ENTERPRISES IN PAKISTAN
PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS
26 SMALL BUSINESS ENTERPRISES: AN ECONOMIC ANALYSIS
REID, GAVIN C.
27 HOW NOT TO RUIN YOUR SMALL INDUSTRY
PHANSALKAR, S.J.
28 CREDIT ANALYSIS FOR SMALL AND MEDIUM ENTERPRISES
DR. BASHIR A KHAN
29 FINANCING OF MEDIUM SIZED ENTERPRISES: CAPITAL STRUCTURE AND THE
ROLE OF FINANCIAL INSTITUTIONS
DR. BASHIR A KHAN
30 TECHNOLOGY SERVICE CENTERS: A BUSINESS PLAN FOR THE GUJRAT AND
GUJRANWALA FAN INDUSTRY CLUSTERS
DR. IRFAN AMER AND DR. JAWAID GHANI
31 ROLE OF PAKISTAN ELECTRIC FAN MANUFACTURE R ASSOCIATION
DR. ARIF IQBAL RANA
32 INDUSTRIALIZATION AND THE SMALL FIRM
SNODGRASS, DONALD R.; BIGGS,TYLER
16-225
16-226

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Analysis Of Fan Industry Of Pakistan Executive Summary

1.1 Objectives Of The Research...................................................................................................................... 1-17

2.1 Small And Medium Enterprise Development Authority ........................................................................... 2-25

3 Porter’s Analysis Of Manufacturers .......................................................................................................... 3-32

3.1 Barriers To Entry....................................................................................................................................... 3-34

3.2.1.1 Large Scale Manufacturers...........................................................................................................................3-38

3.3.4.2 Medium Scale Manufacturers ......................................................................................................................3-48

4 Porter’s Analysis Of Vendors...................................................................................................................... 4-53

4.1 Entry Barriers ............................................................................................................................................ 4-54

4.1.6 Absolute Cost Advantage ................................................................................................................. 4-58

5 Strategic Groups In Fan Industry .............................................................................................................. 5-69

5.1 Strategic Groups Based Upon Price And Quality...................................................................................... 5-70

5.1.4.3 Financial Resources .....................................................................................................................................5-72

6 SWOT Analysis Of Strategic Groups......................................................................................................... 6-78

6.1 SWOT of Large Scale Manufacturers ....................................................................................................... 6-79

6.2.2.1.3 Branding ............................................................................................................................................6-82

6.3.1.2.2 Vertical Integration............................................................................................................................6-87

6.4.1.1.1 Low-Cost ...........................................................................................................................................6-92

6.4.4 Human Resource.............................................................................................................................. 6-98

7 Value Chain Analysis Of Fan Industry ...................................................................................................... 7-99

7.1 Primary Activities.................................................................................................................................... 7-103

7.1.2.9 Quality Checks ...........................................................................................................................................7-110

8.1 Financial Needs And Practices In The Industry ...................................................................................... 8-124

8.1.1.4 Capital Investment Decisions.....................................................................................................................8-126

9 Government Relations ............................................................................................................................... 9-133

9.1 Tax Structure ........................................................................................................................................... 9-134

9.2.3.1.1 Exemption .......................................................................................................................................9-140

10 International Markets.............................................................................................................................. 10-144

10.1 Fan Exports From Pakistan............................................................................................................... 10-145

10.3.18 Russian Federation ................................................................................................................. 10-157

11 Detailed Recommendations ..................................................................................................................... 11-160

11.1 Financial Reforms............................................................................................................................. 11-161

12 Methodology ............................................................................................................................................. 12-170

12.1 Objectives ......................................................................................................................................... 12-171

12.2.6 Target Population ........................................................................................................................ 12-173

13 Appendix A: Questionnaire..................................................................................................................... 13-177

13.1 Detailed interview with Manufacturers and Vendors ....................................................................... 13-178

14 Appendix B. Trade Statistics................................................................................................................... 14-193

15 Appendix C: Interviews........................................................................................................................... 15-211

15.1 Manufacturers................................................................................................................................... 15-212

16 Bibliography ............................................................................................................................................. 16-223

1.1 Objectives Of The Research

· Revitalize the economy through aggressive launch of S.M.E support program.

· Generate massive employment opportunities at lower costs

· Drive industrial growths towards value added exports.

The objectives of the this research study on Fan Industry are to

· Labor force market

1.2 Research Methodology

· Primary data collection

· Secondary data collection

1.3 Key Findings Of The Research

· Government should give incentives to promote technological improvements in the process.

2.1 Small And Medium Enterprise Development Authority

The objectives of SMEDA are to

· Revitalize economy through aggressive launch of SME support program

· Generate massive employment opportunities at lower costs.

· Drive industrial growth towards value added exports.

2.2 Fan Industry

FIGURE 1 NUMBER FIRMS IN FAN INDUSTRY

LARGE SCALE MANUFACTRURERS MEDIUM SCALE MANUFACTURERS

SOURCE: PAKISTAN ELECTRIC FAN MANUFACTURERS ASSOCIATION

2.2.1 Large Scale Manufacturers

FIGURE 2 TOTAL INVESTMENT IN FAN INDUSTRY.